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10 Cards in this Set

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  • Back
Factors affecting Demand



Population


Advertising


Substitutes


Income


Fashion/trends
Interest rates
Complements

Factors which cause the demand curve to shift

Taste


Income


Substitutes


Complements

Movement in Demand curve
Movement in Supply Curve

Factors causing the supply curve to shift

-Change in production costs


-Improvements in production methods


-Change in indirect tax or subsidies


-Firms expectations about future prices


-Weather or natural disasters

Excess Supply and demand

When the price is set above the equilibrium price, there will be too much supply in relation to demand (S>D)-Supply Surplus


Where the price is set below the equilibrium market price leading to a situation where:


Demand>Supply -Shortages

Price elasticity of Demand

PED measures the responsiveness of QD given a change in the price (always -)


>1 Price elastic 1 Unitary elastic


<1 Price Inelastic 0 Perfectly inelastic


Depends on:


Substitutes


Proportion of income


Luxury o necessity


Addictive/nature


Time period



Price elasticity of supply

PES measures the responsiveness of supply given a change in price (always +)


Production lag


Substitutability


Stock (how perishable)


Spare capacity


Time period



Income elasticity of demand

YED measures the responsiveness of demand given a change in income (+normal or -inferior)


Elastic demand >1 = Luxury


Inelastic demand <1 = Necessity

Cross elasticity of demand

XED measures the demand of good A given a change in price of good B (+Substitutes, -complements)


Elastic=closely related


Inelastic=weakly related


0=no relationship