Supplly And Demand Flashcards
1
Q
Law of demand
A
P increases quantity demanded decreases
Income effect - prices higher income affords less
Substitution - prices higher buy substitute as it’s cheaper
2
Q
Demand determinants
A
Tastes Number and price of substitutes Number and price of complementary goods Income Distribution of income Expectations
3
Q
Law of supply
A
Price increase leads to increase in quantity supplied
Profit motive - price rise more profitable
New entrants- price rises attracts new firms
Production and cost - expanding costs increase need to cover
4
Q
Supply determinants
A
Costs of production Profitability of an alternative Profitability of joint supply Nature and random shocks Aims of producers Expectations of producers Change in tech Organisational changes Government policy
5
Q
Price ceiling and price floor
A
Price floor - minimum price
-surplus and lost gains from trade (deadweight loss)
(Above equilibrium )
Price ceiling - maximum price
-shortages and lost gains from trade deadweight loss
(Stop monopolistic exploitation of consumers)
