PRICE DETERMINATION + COMPETITIVE MARKETS- MICROECONOMICS Flashcards
Equilibrium price
EP- price at which planned demand for a good or service exactly planned supply
Supply
S- quantity of good and services a firm is willing and able to produce at a given price in a given time period
Demand
D- quantity of good and services that consumers are willing and able to buy at a given price over a given period of time.
-Law- as a goods price falls more is demanded, an inverse relatonship
->Downward slope due to income and substitution effect
Determinants of demand
Non-price factors
Population
Advertising
Substitutes price
Income
Fashion
Interest Rates
Complements price
Shift the curve
Normal goods
N- a good for which demand increases when incomes rise and decreases when incomes fall
Inferior good
In- a good for which demand decreases as incomes rise and increases when incomes fall
Price Elasticity of Demand
PED- measures the extent to which the demand for a good changes in response to a change in price
PED equation
PED= /\Qd% / /\P%
Income Elasticity of Demand
YED- measures the extent to which the demand for a good changes in response to a change in income
Cross-Elasticity of Demand
XED- measures the extent to which the demand for a good changes in response to a change in price of another good
XED equation
XED= /\Qa% / /\Pb%
Positive= substitutes, Negative= complements
Determinants of PED
Substitutes (No.)
Percentage of Income
Luxury/ necessity
Addictive/ habitual
Time period
Determinants of supply
Non price factors
*Productivity (Labour + capital)
*Indirect Tax
No. Firms
*Technology
*Subsidy
Weather
*Costs of production
Shifts curve
*=direct
Costs of production
-Regulation (taxes)
-Cost of borrowing (interest)
-Wages
-Raw materials
-technical progress
Price Elasticity of Supply
PES- extent to which the supply of a good changes in response to a change in price
