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31 Cards in this Set
- Front
- Back
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Price (demand)
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If other things are held constant, when the price of a good rises, the quantity demanded of the good falls
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Income
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When income falls the demand for a good decreases
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Taste
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If people like a good they will buy more
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Prices of Substitutive Goods
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If good 1 and good 2 are substitutes, when the price for one falls the demand for good 2 decreases, (ex. cigar and ciggarettes)
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Price of Complementary Goods
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If good 1 and good 2 are complements, when the price of good 1 falls, the demand for good 2 increases, (ex. car and gas, if price of gas goes down, people are more likely to buy an SUV more so than they would with high gas prices)
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Demand Curve if price changes
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The curve will shift when income, tastes, or price of related goods change and they should be parallel if these shifts occur
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Demand Curve
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Shows the relationship between the price of a good and the quantity demanded when other factors are held constant
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(demand) Price up
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Demand down
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income up
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demand up
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taste up
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demand up
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Price of sub. good up
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demand up
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Price of comp. good up
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demand down
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Supply Curve
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Shows the relationship between the price of a good and the quantity supplied when costs are held constant
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(supply) Price
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The quantity supplied is positively related to the price of the good (profits= price - costs)
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Costs
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The quantity supplied is negatively related to the costs to make the good
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Supply Curve Shifts
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Shifts only when costs change (shifts left is costs go down because quantity decreases, and shifts right if costs go up because quantity increases)
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Equilibrium
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The demand curve and the supply curve intersect at one point (demand = supply)
There is only E1 if the result of change in price is from product of the law and government E1 and E2 if the result of change in price is from product of the market |
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Excess supply
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if the price > the equilibrium price (p2 is above p1), Qs is farthest to the right
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Excess demand
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if the price < the equilibrium price (p1 is above p2), Qd is farthest to the right
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Change in Equilibrium
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If there is a change in demand, supply, or both
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Price Elasticity of Demand (PED)
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Measures how much the quantity of demand responds to change in price. Price up, demand down and visa versa. Always negative!!
= % change in D/ % change in P new-old/old / new-old/old after finding out changes in demand and in price, compare them to evalutate your findings (change answer to a percentage to see how drastic change is to put into category of elastic or inelastic) |
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Elastic
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the quantity demanded responds substantially to change in price (luxuries and goods with close substitutes)
price elasticity of demand is > 1 Flat lines |
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Inelastic
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the quantity demanded responds only slightly to changes in the price (necessities)
price elasticity of demand is < 1 Steep lines |
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Unit
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price elasticity of demand = 1
45 degree angle |
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Total Revenue
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After making graph, find out where the price is and quantity demanded is then multiply (Revenue= PxQ)
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Income Elasticity of Demand (IED)
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measures how much the quantity demanded changes as consumer income changes
= % change in D/ % change in income can be both positive and negative necessities tend to have small IED's while luxuries have large IED's because consumers can do without these goods |
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Price Elasticity of Supply (PES)
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measures how much the quantity supplied responds to change in price (higher prices raise quantity in supply always)
= % in change in Q supplied/ % change in price |
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Perfect Inelastic Supply
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Elasticity= 0
an increase in price leave the quantity supplied unchanged |
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Perfect Elastic Supply
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Elasticity equals infinity
At an exact specific price, producers supply any quantity, and above that price the quantity supplied is infinite |
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Inelastic Elasticity
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Increase in price leads to a small increase in quantity supplied
Elasticity is < 1 |
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Elastic Elasticity
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An increase in price leads to a large increase in quantity supplied
Elasticity is > 1 |
