1.2 Flashcards
What is demand?
Demand is the amount of a good that consumers are willing and able to buy at a given price
Inferior good
Low quality
Low price
Demand decreases as incomes rise
A luxury good
High, quality and price
Demand increases as incomes rise
Substitute, good
Changes in price of substitutes affect impact on demand
Complimentary good
Purchases are linked
Demand of one will affect demand for another
A normal good
Increased income leads to an increase in demand
What is supply?
The quantity of a good of service that the producer is willing to provide to the marketplace at different prices
Market equilibrium is
When the market price in the production quantity remains stable and are balanced
What happens to price and demand when either changes
Increase in price lead to decrease in quantity demanded
Decrease in price leads to an increase in quantity demanded
What happens to price and supply when either changes
An increase in price leads to an increase in quantity supplied
A decrease in price leads to a decrease in quantity supplied
What is PED
What is the formula
PED is price elasticity demand
It is how responsive demand is the changes and price
PED= percentage change in quantity demanded/ percentage changing price
Elastic demand is
Demand does change with price if we drop the price of a product and demand should rise a lot
Inelastic demand is
Demand doesn’t change your price even if price goes up or down, we still need the same quantity
E.G. Electricity.
Elasticity number
-Perfectly inelastic
- inelastic
-unit elastic
-Elastic
0
less than 1
1
more than 1
YED is
Income, elasticity of demand
Measures the relationship between a change in quantity demanded and a change in real income
YED= percentage change in demand/percentage change in income
