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15 Cards in this Set
- Front
- Back
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Coefficient of Elasticity
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e = % change quality/ % change of price
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Revenue
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R = P x Q
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Inelastic Demand (low demand)
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Product or resource demand for which the Coefficient of Elasticity is less than 1; to get a higher revenue push the price UP
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Elastic Demand (high demand)
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Product or resource demand whose price elasticity is greater than 1; to get a higher revenue push the price DOWN
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3 Definitions of Economy
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Engineer --> study of scarcity
Shaker --> study of how to reduce wants (simplicity) Politician --> study of social provision (encompasses both) |
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There are __ sides of a market.
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2: supply & demand
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Law of Demand
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price goes up, quantity goes down
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Law of Supply
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price goes up, quantity goes up
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Market clearance is also called an ________.
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Equilibrium
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Equilibrium means that
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The flow of supply into the market = the flow of demand out of the market OR producing and selling at the same rate that consumers are buying.
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If market is not clearing there are two possible outcomes.
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Shortage or Surplus
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Shortage
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High demand, low supply --> raise price to fix this
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Surplus
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High supply, low demand (too many products are being produced)--> lower price to fix this
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Look at Diagram (supply curve, demand curve, surplus, shortage, equilibrium)
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P= price (vertical)
Pe= price equilibrium Ph= price high (surplus) Pl= price low (shortage) S= supply D= demand Q= quantity (horizontal) |
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Price Mechanism
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Surplus - eliminate with lower price
Shortage - eliminate with higher price |
