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| 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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