Supply And Demand Flashcards
What are the Determinants of Demand
Income
Advertising and Publicity
Fashion
Quality
Seasonal Changes
The Law
Expectations about Future prices
Price of compliments
Price of substitutes
What are the Determinants of Suply
Cost of raw materials
Technology
Labour Productivity
Government Regulation
Wages
Tax/Subsidies
Firms entering/leaving the market
Expectations of future prices
What are complimentary goods?
Complimentary goods are ones which go together. You don’t always need one to have the other
What are substitute goods?
Substitute goods are good which do (roughly) the same thing so you buy one or the other.
Definition of Demand
The amount of a good or service that consumers are willing and able to buy at a given price at a given time
Definition of Supply
The amount of a good or service that producers are willing and able to sell at a given price at a given time
Definition of Markets
A market is where consumers and producers meet to trade goods or services and establish equilibrium price and quantity
Definition of Equilibrium
The price at which everyone who wants to buy a good can find one to buy and everyone who wants to sell can find a buyer
Difference between product markets and factor markets
Factor markets are any markets for the factors of production
Product markets are markets for finished goods
Definition of PED
The responsiveness of quantity demanded to a change in price.
Definition of PES
The responsiveness of quantity supplied to a change in price
What is Elastic Demand?
Elastic demand is where a change in price results in a greater change in quantity demanded
E.g. CDs, Jewellery, Luxury Items
What is Inelastic Demand?
Inelastic demand is where a change in price results in a smaller change in quantity demanded
E.g. Food, alcohol, necessities and addictive goods
Describe the slope of a demand curve for elastic and Inelastic demand
Elastic will have a shallow descending line
Inelastic will have a steep descending line
Formula for PED
PED = % change in quantity demanded / % change in price
What might determine if a good is elastic or Inelastic in demand?
How much you need the good?
How many substitutes there are?
Whether it is an addictive or habitual good?
How quickly can you change your consumption?
How much of your income it takes up?
What is Elastic Supply?
If the supply of a good is elastic that means that when the price increases, businesses will be willing able to sell a lot more.
What is Inelastic Supply?
If the supply of a good is Inelastic that means that when the price increases, businesses will only be willing able to sell a little bit more.
Describe the slope of a supply curve for elastic and Inelastic supply
Elastic will have a shallow ascending line
Inelastic will have a steep ascending line
Formula for PES
PES = % change in quantity supplied / % change in price
PES will always be ……
Positive
PED will always be ……
Negative
If PES or PED = 1 or -1
Then it is unit elastic
Line of PED and PES
PED | PES
- infinity to - 1 | -1 to 1 | 1 to infinity
Elastic. Inelastic. Elastic.
