Markets Flashcards
What are the determinants of demand
Level of RDI
Price of other goods
Tastes and fashions
What happens to supply if the price of a good/service is higher than the equilibrium price
There is excess supply
What is PED
Price elasticity of demand - The responsiveness of quantity demand due to a change in price
What is PES
Price elasticity of supply - The responsiveness of supply due to a change in price
What is XED
Cross elasticity of demand - The responsiveness of quantity demanded in 1 good due to a change in price of another good
What is YED
Income elasticity of demand – The responsiveness of the quantity demanded for a good due to a change in RDI
How do you decide if a good/service is elastic or inelastic
If |Elasticity| > 1 then it is elastic if not then it is inelastic
What is consumer/producer surplus
Consumer surplus – The amount that a consumer is willing to pay above the equilibrium price
Producer surplus - The profit made from selling a good/service
What is an inferior good
A good that has increases in demand when RDI decreases
Describe a perfectly inelastic demand curve
A vertical line
What are the determinants of PED
Substitutability
What are the determinants of PES
Time - in the long term supply will change with profit however in the sort term it wont
What are the determinants of YED
The nature of the good – Luxury vs necessity
What are the determinats of XED
The relationship between the 2 goods
