microeconomics - demand & supply Flashcards
law of demand
states that there is an inverse relationship between price and quantity demanded
demand
refers to the quantity of a good that consumers are willing and able to buy at each given price, ceteris paribus
quantity demanded
refers to the quantity of a good that consumers are willing and able to buy at a specific price, ceteris paribus
What are changes in demand and quantity demanded caused by respectively?
changes in demand: caused by non-price factors
changes in quantity demanded: caused by changes in price
Name the non-price factors that cause changes in the quantity demanded of a good.
F-EGYPT
factors of production (derived demand), expectation of future price changes, government policies, income levels, population + price of related goods, tastes and preferences
Explain how the non-price factor ‘F’ in ‘F-EGYPT’ leads to a change in the demand for a good.
F: factors of production (derived demand).
FOPs are goods that are used in the production of other products. Therefore, an increase in the demand or quantity demanded of a good will cause the derived demand of its FOPs to increase, and vice versa.
law of supply
states that there is a positive relationship between price and quantity supplied
supply
refers to the quantity of good that producers are willing and able to sell at each given price, ceteris paribus
quantity supplied
refers to the quantity of good that producers are willing and able to sell at a specific price, ceteris paribus
what causes changes in quantity supplied and supply respectively?
quantity supplied: changes in price
supply: non-price factors
Name the non-price factors that cause changes in the quantity supplied of a good.
WET-PIGS
- weather conditions
- expectations of future price changes
- technological changes
- prices of related goods
- input prices
- government policies
- supply shocks + no. of Sellers
How does an increase in demand of Good X affect its market?
- demand factor + explain how it leads to an increase in demand of Good X
- Consequently, demand increases. This is represented by a rightward shift of the demand curve from DD0 to DD1.
- Thus, a shortage of QdQs is created, which exerts an upward pressure on price.
- As price increases, the quantity demanded of Good X decreases along DD1 to E1
- and the quantity supplied of Good X increases along SS to E1.
- Via the price adjustment process, a new market equilibrium is established at E1.
- The net effect is an increase in price by (P1-P0) and an increase in quantity by (Q1-Q0).
What are goods in competitive supply? How will an increase in demand of a good in competitive supply affect the supply of a related good.
goods in competitive supply are goods that are produced using the same factor input. Hence, an increase in the demand of a good in competitive supply will cause the supply of a related good to decrease, and vice versa.
e.g. maize & corn
What are goods in joint supply? How will an increase in demand of a good in joint supply affect the supply of a related good?
goods in joint supply are goods that are produced simultaneously through the same production process. Hence, an increase in the demand of a good in joint supply will increase the supply of a related good.
(e.g. diesel & petrol)
How does an increase in supply of Good X affect its market?
- supply factor (WETPIGS) + explain how it leads to an increase in supply of the good
- as such, supply increases from SS0 to SS1, as reflected by the rightward shift of the supply curve
- consequently, a surplus of QsQd is created, which exerts a downward pressure on prices
- as prices decrease, quantity demanded increase along DD to E1
- while quantity supplied decreases along SS1 to E1
- via the PAP, a new market equilibrium is established at E1
- the net effect is a decrease in prices by P0P1 and an increase in quantity by Q0Q1
