the market (elasticities) Flashcards
demand
the amount society is willing and able to buy at a set price at a given point in time
factors affecting demand
PASIFIC
Population
Advertising
Substitutes
Income
Fashion
Interest
Complements
DEMAND: change in other factors resulting in a decrease in demand means the curve shifts…
downwards and to the left
DEMAND: change in other factors resulting in an increase in demand means the curve shifts…
upwards and to the right
supply
the amount of a good or service that producers are willing and able to sell at any given price
factors affecting supply
Productivity
Indirect taxes
Number of firms
Technology
Subsidies
Weather
Cost of production
SUPPLY: change in other factors resulting in a decrease in supply means the curve shifts…
upwards and to the left
SUPPLY: change in other factors resulting in an increase in supply means the curve shifts…
downwards and to the right
market
any place where buyers and sellers exchange goods or services
market equilibrium
the point at which demand is equal to supply
MARKET: decrease in price results in
excess demand, where buyers demand more (q2) and suppliers want to supply less (q1)
MARKET: increase in price results in
excess supply, where buyers demand less (q1) and suppliers want to supply more (q2)
a change in price affects the supply or demand curve…
a movement along the supply or demand curve
changes in other factors that are not price affect the supply or demand curve by…
by shifting the supply or demand curve and creating a new market equilibrium
Price Elasticity of Demand (PED)
a measure of how responsive demand is to a change in price
price elastic definition
a change in price will result in a more than proportional change in demand (demand is sensitive to price changes)
price inelastic definition
a change in price will result in a less than proportional change in demand (demand is not so sensitive to price changes)
PED formula
(% change in quantity demanded) / (% change in price) x 100
% change
(new-old)/old
PED is between 0 and -1…
price inelastic
PED is less than -1…
price elastic
Income Elasticity of Demand (YED)
a measure of the responsiveness of demand to a change in income
inferior good
when incomes fall demand rises: has negative YED values
normal good
when incomes rise demand rises: will have a positive YED value
YED formula
(% change in quantity demanded) / (% change in income)
YED is in between -1 and 1
income inelastic
YED is greater than 1 or less than -1
income elastic
