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MICRO ECONOMICS IMPROVED > SUPPLY AND DEMAND > Flashcards

SUPPLY AND DEMAND Flashcards

1
Q

What is the formula for PED

A

%Change in quantity demand / %Change in price

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2
Q

PED will always be negative why?

A

because when price increases, quantity demanded decreases
but when price decreases, quantity demanded increases.

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3
Q

Demand is elastic when

A

PED is between -1 and - infinity

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4
Q

What does PED measure

A

PED measures how much quantity demanded changes in response to a change in price

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5
Q

Inelastic demand is when

A

PED is between -1 and 0

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6
Q

What is unitary elastic demand

A

When PED = -1

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7
Q

What does an Elastic demand curve look like

A

Gentle, flatter slope because a small change along the price axis leads to a larger % change along the quantity axis.

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8
Q

What does an inelastic demand curve look like

A

Steeper slope because a large change along the price axis leads to a smaller % change along the quantity axis.

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9
Q

What does the unitary elastic demand curve look like

A

Looks like the beginning of a u add an image

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10
Q

Perfectly inelastic demand is when

A

PED = 0

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11
Q

Perfectly elastic demand is when

A

PED = - infinity

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12
Q

What are the factors which affed PED

A

NASBIT

Necessity or luxury

Addictive or habit-forming

Substitutes

Brand loyalty

Proportion of Income

Time

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13
Q

What happens to elasticity in the long run

A

In the long run, elasticity of demand and supply tends to increase compared to the short run.

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14
Q

If demand is elastic, when price increases what happens to revenue

A

quantity demanded will fall by larger %, so total revenue will decrease

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15
Q

If demand is elastic, when price decreases what happens to total revenue

A

total revenue will increase, because quantity will increase by a larger %

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16
Q

Describe the total revenue diagram for when price decreases for an elastic good

A

Add diagram

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17
Q

Inelastic demand and total revenue describe

A

Add diagram

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18
Q

What happens to total revenue when a good has unitary elastic demand

A

Whether price increases or decreases, total revenue will not change at all

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19
Q

What is the PED of a necessity

A

Necessities tend to be inelastic

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20
Q

What do you think it means if a good is a necessity?

A

It means that we need it to live our lives

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21
Q

What does it mean if a good is a luxury

A

It means that the good is not needed, but is nice to have if a consumer can afford it

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22
Q

What happens to elasticity in the long run and why

A

Elasticity increases in the long run

More time to look for substitutes

therefore more elastic

23
Q

What happens to normal goods when income changes

A

For normal goods demand will increase when incomes rise,

demand will decrease when incomes fall.

24
Q

What happens to inferior goods when incomes change

A

For inferior goods demand will increase when incomes fall

and demand will decrease when incomes rise.

25
Q

What happens to the demand for substitute goods when price of other goods changes

A

For substitute goods demand for the first good will decrease
when price of second good falls,

and demand for the first good will increase when price of second good rises.

26
Q

What happens to complementary goods when the price of other goods changes

A

For complementary goods demand for the first good will increase when price of second good falls,

and demand for the first good (iPhone) will decrease when price of second good (iPhone apps) rises.

27
Q

We only move along the demand curve

A

When price changes, any other factor will shift the demand curve

28
Q

With substitute goods, if the price of one good goes down, demand for the other good will:

A

decrease

29
Q

With substitute goods, if the price of one good goes up demand for the other good will:

A

increase

30
Q

What are complementary goods

A

Complementary goods are goods which are bought and used together

31
Q

If the price of one complementary good went up, demand for the other good would:

A

Decrease

32
Q

What are the 6 factors which affect demand

A

Advertising
Fashion and trends
population and age structure
Seasons
Income
Price of other goods

33
Q

The factors that shift demand are also known as:

A

conditions of demand

34
Q

what kind of goods have a negative yed

A

Inferior Goods

35
Q

What kind of goods have a yed between 0 and 1

A

Normal goods

36
Q

What kind of goods have a elasticity between 0 and 1

A

income inelastic goods or necessities

37
Q

what kind of goods have a yed of greater than 1

A

Luxury goods

38
Q

What is the xed for complements

A

negative

39
Q

what is the xed for substitutes

A

positive

40
Q

When xed = 0 the two goods are..

A

unrelated goods

41
Q

what is the formula for xed

A

%change in demand for good a / % change in price for good b

42
Q

what does it mean if a producer supplies something

A

they are willing and able to sell it

43
Q

Price elasticity of supply measures:

A

how much quantity supplied changes in response to a change in price

44
Q

What is the formula for PES

A

%change in qs / %change in price

45
Q

Why might we get a PES bigger than 1?

A

If the % change in Qs is bigger than % change in Price

46
Q

Supply is elastic when:

A

PES is between 1 and infinity

47
Q

A good will have a PES smaller than 1 if:

A

the % change in Qs is smaller than the % change in price

48
Q

Inelastic supply is when PES is:

A

between 0 and 1

49
Q

When PES =1 supply is:

A

unitary elastic

50
Q

When PES = 0 we say that supply is:

A

perfectly inelastic

51
Q

If the state of the economy is bad, if people are unemployed and shops are vacant after businesses had to close down, how easy will it be to expand your business and increase the quantity you supply?

A

it will actually be very easy for to expand his business. If workers are unemployed, it’ll easily be able to find people to work .

52
Q

What are the the factors which affect PES

A

TEASS

Time

State of the Economy

Availability of factors of production

Spare capacity

Stockpiles and perishability

53
Q

What are the factors that affect supply?

A

Technology
Weather
Costs
Number of suppliers
Productivity

54
Q
A

MICRO ECONOMICS IMPROVED (14 decks)

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