ECON 101

% change in quantity demanded / % change in price

PED

inelastic

PED < 1

unit elastic

PED = 1

elastic (+)

PED > 1

1) availability of close substitutes 2) necessity vs luxury 3) time horizon 4) definition of market

PED depends on:

increase in price = decrease in demand for complement

complement effect

income, price of related goods (substitutes/complements), tastes, expectations, # of buyers

demand curve shifters

how society uses its resources (size of pie)

efficiency

-

elastic

making sure people get uniform distribution of prosperity (equal slices of pie)

equality

enforce property rights and promote efficiency

how can government improve market outcomes?

higher; lower

if a surplus exists in the hamburger market, then the current price must be ______ than the equilibrium price, and you would expect sellers to offer ______ prices

I

inelastic

the claim that, with other things being equal, the quantity demanded of a good falls when the price of that good rises

law of demand

the claim that, with other things being equal, the quantity supplied of a good increases when the price of that good rises

law of supply

incremental adjustments

marginal changes

change in price

movement along demand/supply curve

a measurement of how much quantity demanded responds to a change in price

price elasticity of demand (PED)

the amount of a good that buyers are willing and able to purchase at a given price

quantity demanded

upward

shortage causes a(n) ______ pressure on prices

increase in price = increase in demand for substitute

substitute effect

input prices, technology, expectations, # of sellers, # of producers

supply curve shifters

downward

surplus causes a(n) ______ pressure on prices