Econ--Supply and Demand and Price Elasticity

When does a perfectly elastic demand happen? What type of curve results?

Perfectly Elastic Demand happens, when a SMALL CHANGE in the PRICE of the product results in a VERY LARGE change in the QUANTITY DEMANDED. (horizontal demand curve).

When does perfectly inelastic demand happen? What type of demand curve results? Example?

Perfectly Inelastic Demand happens, when a percentage change results in NO CHANGE in the QUANTITY DEMANDED. (VERTICAL DEMAND CURVE) *DIABETIC'S DEMAND FOR INSULIN.

What does price elasticity of demand (Ed) do?

Price Elasticity of Demand (Ed), measures the SENSITIVITY OF CONSUMERS to a CHANGE in the PRICE of a product.

What does price elasticity of supply measure? (Es)

Price Elasticity of Supply, measures the sensitivity of products to a change in the price of the product.

What does quantity demanded refer to?

Quantity demanded, refers to a POINT ON THE DEMAND CURVE. Each point has a different price quantity combination.

What are substitutes?

Substitutes are, when two products are substitutes, the PRICE OF ONE and the DEMAND FOR THE OTHER move in the same direction

What is an examples of a substitute?

Substitutes: tea and coffee are substitutes. When the price of coffee increases IN RELATION TO THE PRICE OF TEA, consumers will buy more tea

What is supply?

Supply is a, schedule or curve showing the amounts of a product a producer is WILLING and ABLE to supply at DIFFERENT PRICES during a specific period.

What is the demand curve?

The Demand Curve is, a GRAPHICAL REPRESENTATION of the demand schedule: NEGATIVE SLOPED CURVE showing the INVERSE relationship between PRICE and QUANTITY DEMAND of a product

What is the Law of Demand

The Law of Demand is, the QUANTITY of a product demanded is INVERSELY related to the PRICE of the product, other things are held constant

What is the Law of Supply?

The Law of Supply is that, there is a POSITIVE RELATIONSHIP between PRICE and QUANTITY SUPPLIED. When price increase, quantity supplied will also increase. (other things are held constant)

What is the total revenue test?

The Total Revenue Test is the, total amount the seller receives from the sale of a product.

What are the income elasticity coefficients (Ei)

POSITIVE: normal goods NEGATIVE: inferior goods

What are THE THREE DYNAMIC LAWS OF DEMAND AND SUPPLY?

-(first) when the QD is greater than QS, prices will increase (shortage/excess demand). When QS is greater than QD prices will fall (surplus/excess supply) -(second) in a market where there is excess supply or excess demand there will be PRESSURE on price to rise or fall accordingly. -(third) when QS equals QD (market equilibrium) PRICE HAS NO TENDENCY TO CHANGE.

What are complementary goods?

-Goods that generate satisfaction when CONSUMED TOGETHER. -When two goods are complimentary goods, the PRICE OF ONE and the DEMAND FOR THE OTHER move in the OPPOSITE DIRECTION.

WHEN PRICE DECREASES THE MARKET DEMAND WILL INCREASE DUE TO:

-at lower prices NEW CONSUMERS will demand the product. -consumer who were already buying will BUY MORE since the price is lower.

What are the determinants of the elasticity of supply?

-ease of *SHIFTABILITY OF RESOURCES* between alternative uses -*TIME* producers have to adjust to a price change.

When is the total revenue test inelastic?

-if demand is INELASTIC, a DECREASE IN PRICE will DECREASE TOTAL REVENUE. -demand is INELASTIC if a price change causes TOTAL REVENUE TO CHANGE IN THE SAME DIRECTION.

What are the SHIFT FACTORS OF SUPPLY?

-prices of resources -technology -price of other goods -number of sellers -producer expectations.

what are the determinants of price elasticity of demand?

-substitutability -price of the product in relation to income -luxuries verse necessities

What are the shift factors of demand?

-tastes and preferences of consumers -income of the consumer -the number of buyers -price of related goods -consumer expectations -taxes and subsides

What is a shortage? (excess demand)

A shortage (excess demand), is the excess of quantity demanded over the quantity supplied when the price is below the equilibrium.

What is a surplus (excess supply)?

A surplus, is excess of the quantity supplied over the quantity demanded when the price is ABOVE THE EQUILIBRIUM.

What are the elasticity coefficients?

POSITIVE: substitutes NEGATIVE: complimentary goods ZERO: unrelated goods

What is cross elasticity of demand (Exy)?

Cross Elasticity of Demand (Exy) is, the sensitivity of the DEMAND for one product to a change in the PRICE of another product.

When does elastic demand happen?

Elastic Demand happens, when a percentage change in the price of the product results in a LARGER percentage change in the quantity demanded, then Ed will be GREATER THAN 1.

What WILL SHIFT THE DEMAND CURVE?

DEMAND CURVE WILL SHIFT due to a change in one or more of the SHIFT FACTORS OF DEMAND.

Why does ELASTICITY VARY WITH THE PRICE RANGE OF THE DEMAND CURVE?

Demand is typically ELASTIC in the high price (low quantity) range of the demand curve and INELASTIC in the low-price (high quantity) range of the demand curve.

What does demand refer to? When does it vary/differ?

Demand, refers to the entire demand for a product (different at different prices)

What are THREE INVISIBLE FORCES THAT INFLUENCE MARKET PRICE?

INVISIBLE HAND: economic forces of demand and supply INVISIBLE HANDSHAKE: social forces INVISIBLE FOOT: political and legal forces

What does income elasticity (Ei) measure?

Income Elasticity (Ei), measures the degree to which consumers respond to a change in their income by buying more or less of a product.

What is inelastic demand?

Inelastic demand is, when a percentage change in the price of the product results in a SMALLER percentage change in the quantity demanded, then Ed will be LESS THAN 1.

What are the TIME PERIODS; describe them.

MARKET PERIOD: immediately after a change in the market price SHORT-RUN: when plant capacity is fixed. But firms do have time to use the fixed plant more intensively. LONG-RUN: producers have time to make all desired resource adjustments.

A CHANGE IN THE PRICE of the product will be indicated by a....

MOVEMENT ALONG the demand curve.

What is market demand?

Market Demand, is the horizontal summation of individual buyers.

When does unit elasticity happen?

Unit Elasticity happens, when a percentage change in price and the resulting percentage change in demand are EQUAL then Ed will be EXACTLY 1.

When does the total revenue test show a produce has unit elasticity?

a change in the price will NOT CHANGE the total revenue if the product has UNITY ELASTICITY.

What is the definition of demand?

demand, is the quantity of a product that people are WILLING and ABLE to buy during a specific period

When is the total revenue test elastic?

if demand is ELASTIC, a decrease in price will INCREASE THE TOTAL REVENUE.

IF PRODUCERS ARE RELATIVELY RESPONSIVE TO A PRICE CHANGE SUPPLY IS...../IF NOT, SUPPLY IS....

if producers are relatively responsive to a price change supply is elastic/if not supply is inelastic

What is market equilibrium?

occurs at the PRICE QUANTITY COMBINATION where the QUANTITY DEMANDED and the QUANTITY SUPPLIED are EQUAL.