Econ December exams prep

Description

Topic Demand and Supply, Equilibrium and Elasticity
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Flashcards by ji57ch22, updated more than 1 year ago
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Created by ji57ch22 about 7 years ago
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Resource summary

Question Answer
Demand The quantity of a product that consumers are willing to buy at certain price in a given time period
The law of Demand Negative/ Inverse relationship
Non-price Determinants of Demand Consumer income, Prices of related goods, income distribution, government policies, Taste/ Preference, Seasonal change, Population strucutre
Supply The quantity of a good that sellers are willing and able to supply at a given price in a given time period
The law of supply Positive/ Direct relationship
The non-price determinants of Supply Cost of factors of production, other products producers can make, state of technology, future expectation, government intervention, seasonal changes
Linear demand function Qd= a-bP
Linear Supply function Qs= c + dP
Equilibrium price The price that balances supply and demand
Equilibrium quantity The quantity that balances supply and demand
Shortage When the price is below the Equilibrium price, the Quantity demanded exceeds the Quantity supplied
Surplus When the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded
Elasticity Elasticity is a measure of how much buyers and sellers respond to changes in market conditions
PED Its is a measure of how the quantity demanded of a good responds to a change in the price of that good
Determinants of PED Necessity vs. Luxury, the number of close substitutes, the time horizon and definition of the market
Formula PED %change Od/%change of P
Range of PED more than one elastic less than one but not 0 inelastic
Total revenue amount paid by buyers and received by sellers of a good
formula Total revenue Tr= P x Q inelastic demand-> Tr increases elastic demand-> Tr decreases
XED Measures how much the Quantity demanded of one good responds to a price change of another good
Formula of XED XED= %change Qd of Product X/ %change in Price of Product Y
Range of XED greater than 0= substitute relationship Smaller than 0= complementary relationship
YED Measures how the quantity of a product responds to a change in consumers income
Formula YED YED= %change in Qd/ %change in income
Range of YED smaller than 0= inferior good greater than 0= normal good smaller than 1= necessity (inelastic) greater than 1= luxury good (elastic)
PES PES measures how the quantity supplied responds to a change in price of that good
Ranges of elasticity of supply Perfectly elastic Es= infinity Relatively elastic Es greater than 1 Unit elastic Es=1 Relatively inelastic Es smaller than 1 Perfectly inelastic Es= 0
Formula of PES PES= %change in Qs/ %change in Price
Determinants of PES Ability of sellers to change amount of good they produce, Mobility of factors of production, Time period, Ability to store stock
PES for Commodities Inelastic supply Manufactured goods more elastic
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