SUPPLY AND DEMAND Flashcards
What is the formula for PED
%Change in quantity demand / %Change in price
PED will always be negative why?
because when price increases, quantity demanded decreases
but when price decreases, quantity demanded increases.
Demand is elastic when
PED is between -1 and - infinity
What does PED measure
PED measures how much quantity demanded changes in response to a change in price
Inelastic demand is when
PED is between -1 and 0
What is unitary elastic demand
When PED = -1
What does an Elastic demand curve look like
Gentle, flatter slope because a small change along the price axis leads to a larger % change along the quantity axis.
What does an inelastic demand curve look like
Steeper slope because a large change along the price axis leads to a smaller % change along the quantity axis.
What does the unitary elastic demand curve look like
Looks like the beginning of a u add an image
Perfectly inelastic demand is when
PED = 0
Perfectly elastic demand is when
PED = - infinity
What are the factors which affed PED
NASBIT
Necessity or luxury
Addictive or habit-forming
Substitutes
Brand loyalty
Proportion of Income
Time
What happens to elasticity in the long run
In the long run, elasticity of demand and supply tends to increase compared to the short run.
If demand is elastic, when price increases what happens to revenue
quantity demanded will fall by larger %, so total revenue will decrease
If demand is elastic, when price decreases what happens to total revenue
total revenue will increase, because quantity will increase by a larger %
Describe the total revenue diagram for when price decreases for an elastic good
Add diagram
Inelastic demand and total revenue describe
Add diagram
What happens to total revenue when a good has unitary elastic demand
Whether price increases or decreases, total revenue will not change at all
What is the PED of a necessity
Necessities tend to be inelastic
What do you think it means if a good is a necessity?
It means that we need it to live our lives
What does it mean if a good is a luxury
It means that the good is not needed, but is nice to have if a consumer can afford it
What happens to elasticity in the long run and why
Elasticity increases in the long run
More time to look for substitutes
therefore more elastic
What happens to normal goods when income changes
For normal goods demand will increase when incomes rise,
demand will decrease when incomes fall.
What happens to inferior goods when incomes change
For inferior goods demand will increase when incomes fall
and demand will decrease when incomes rise.
What happens to the demand for substitute goods when price of other goods changes
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.
What happens to complementary goods when the price of other goods changes
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.
We only move along the demand curve
When price changes, any other factor will shift the demand curve
With substitute goods, if the price of one good goes down, demand for the other good will:
decrease
With substitute goods, if the price of one good goes up demand for the other good will:
increase
What are complementary goods
Complementary goods are goods which are bought and used together
If the price of one complementary good went up, demand for the other good would:
Decrease
What are the 6 factors which affect demand
Advertising
Fashion and trends
population and age structure
Seasons
Income
Price of other goods
The factors that shift demand are also known as:
conditions of demand
what kind of goods have a negative yed
Inferior Goods
What kind of goods have a yed between 0 and 1
Normal goods
What kind of goods have a elasticity between 0 and 1
income inelastic goods or necessities
what kind of goods have a yed of greater than 1
Luxury goods
What is the xed for complements
negative
what is the xed for substitutes
positive
When xed = 0 the two goods are..
unrelated goods
what is the formula for xed
%change in demand for good a / % change in price for good b
what does it mean if a producer supplies something
they are willing and able to sell it
Price elasticity of supply measures:
how much quantity supplied changes in response to a change in price
What is the formula for PES
%change in qs / %change in price
Why might we get a PES bigger than 1?
If the % change in Qs is bigger than % change in Price
Supply is elastic when:
PES is between 1 and infinity
A good will have a PES smaller than 1 if:
the % change in Qs is smaller than the % change in price
Inelastic supply is when PES is:
between 0 and 1
When PES =1 supply is:
unitary elastic
When PES = 0 we say that supply is:
perfectly inelastic
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?
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 .
What are the the factors which affect PES
TEASS
Time
State of the Economy
Availability of factors of production
Spare capacity
Stockpiles and perishability
What are the factors that affect supply?
Technology
Weather
Costs
Number of suppliers
Productivity
