Supply and Demand Flashcards
the quantity supplied at certain prices; different than quantity
Supply
attitude of those in the market buying
Demand
business or organization (owned by an individual)
Firm
the exchange of inputs we produce
Factor markets
the exchange of goods and services
Product markets
a condition in which an individual or firm has an unfair advantage (decreases efficiency)
Market power
limits market power
Equal access to information
a situation where there is no way to make someone better off without making someone worse off (highest efficiency)
Pareto Optimality
amount that demand responds to market conditions
Elasticity
insignificant change in demand regardless of market conditions
Inelastic
a good for which there are no substitutes; more inelastic; e.g healthcare, gasoline
Necessity
more elastic
Luxury
Factors that determine inelasticity
Necessity vs. luxury
Price and quantity of available substitutes
Time frame
Price relative to wealth and income
percentage change in quantity and price are equal
Unitary elasticity
price X quantity
Total revenue
significantly elastic demand in which demand is more dependent on price
Price sensitive
factors that alter changes in demand
Shift variables
a variable that is impacted by complements and substitutes (related goods)
Price of related goods
items that are often consumed together (e.g. french fries & ketchup)
Complements
goods that can replace the utility of another good (e.g. Pepsi & Coke)
Substitutes
how much a quantity demand change in one good impacts the price of another good
Cross price elasticity
how much the quantity demanded of a good of services changes as a result of income
income elasticity (of demand)
any good in which demand increases as income increases
Normal goods
any good in which demand decreases as income increases
Inferior goods
