Lecture 2 | Basic of Supply and Demand

Question 1

What does supply tell us?

Answer 1

The supply curve is upward sloping, it tells us the willingness of a firm to sell increases when prices goes up

Question 2

What does Demand tell us?

Answer 2

Downward sloping curve that indicates consumers are willing to buy more products when prices go down

Question 3

What is market equilibrium?

Answer 3

Quantity demanded = Quantity supplied

Question 4

What is elasticity?

Answer 4

Percentage change in one variable, resulting from a 1% increase in another

Question 5

Reiterate the equation for price elasticity of demand

Answer 5

= change in Q / change in P x P/Q

Question 6

What is the difference between being elastic and inelastic?

Answer 6

Elastic: when Ep > 1, as a magnitude of greater than 1 implies that 1% increases in prices leads to more than a 1% decrease in quantity demanded

Inelastic: when Ep<1, as a magnitude of less than 1, this implies a 1% increase in the price leads to less than a 1% decrease in quantity demanded