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26 Cards in this Set
- Front
- Back
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if demand is increased
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Price increases and Quantity increases
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if demand is decresed
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price decreases and quantity decreases
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if supply is increased
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price decreases and quantity increases
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if supply is decreased
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price increases and quantity decreases
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if both supply and demand are increased
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price is undetermined and quantity increases
(expanding market) |
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if both supply and demand are decreased
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price is undetermined and quantity decreases
(contracting market) |
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if supply is decreased and demand is increased
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price increases and quantity is undetermined
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if supply is increased and demand is decreased
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price decreases and quantity is undetermined
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no change in supply or demand
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constant market
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inelastic demand
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coefficient is less than 1. customers are not very sensitive to price changes. Raising prices increases total revenue
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unit elasticity
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coefficient is equal to 1. raising prices has no effect on total revenue. there is a 1-to-1 ratio of increasing price and decreasing quantity of demand
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elastic demand
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coefficient is greater than 1. customers are sensitive to price changes. raising prices decreases total revenue.
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Determinants of ED
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% of budget, shopping time period, luxury vs. necessity, availability of good substitutes
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% of budget
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if a purchase is a high percentage of your budget, you will have elastic demand and vice versa
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shopping time period
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if you spend a long time shopping for something, your demand will be elastic and vice versa
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luxury vs. necessity
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if it is a luxury, your demand will be elastic and vice versa
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availability of good substitutes
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THE MOST IMPORTANT DETERMINANT OF ED. if there are a lot of good substitutes, your demand will be elastic and vice versa
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principle of decreasing marginal utility
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PWST as successive units of a good or service are consumed, the marginal utility will decrease
MU=change in TU/change in Qd |
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income effect
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PWST if the price rises, it will cause a decrease in buyer's income, which will decrease the demand for normal goods.
NOT ALWAYS POSITIVE (giffen goods) |
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giffen good
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A good that the consumer has no way of judging its relative value. when a giffen good's price increases, Qd increases as well.
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Substitution effect
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PWST when price increases, relative value decreases which causes Qd to decrease
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equimarginal principle
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PWST utility is maximized when the marginal utility per dollar spent is equal between alternatives
MUa/Pa=MUb/Pb=MUc/Pc |
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Total Revenue
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TR=Price X Qd
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Marginal Revenue
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the sales dollar amount (additional revenue) of the last unit sold.
Marginal Revenue=change in total revenue/change in Qd |
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elasticity of demand
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ED = %change in Qd / %change in price
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the market period
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the period of time when Qs=0
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