The Economic Marketplace (B5:M3) Flashcards
what is elasticity?
measure of how sensitive the demand for, or the supply of, a product is to change in price
elastic: price sensitive (elasticity > 1)
inelastic: price insensitive (elasticity < 1)
unit elastic: elasticity = 1
perfectly inelastic: elasticity = 0
what will a ceiling price set below the equilibrium price cause? What about a floor above the equilibrium price?
a shortage: quantity demanded > quantity supplied
a surplus: quantity supplied > quantity demanded
in terms of supply and demand, what will cause equilibrium price to increase?
demand increases and supply decreases
what does the demand curve illustrate?
max quantity of a good that consumers are willing and able to purchase at any given price
what is the relationship between price of product and quantity demanded?
inverse
what causes a change in quantity demanded?
a change in price.
remember, a change in quantity demanded is movement along the demand curve; not a shift in demand
what does a govt price support program do?
acts as a subsidy that will encourage suppliers to increase supply beyond equilibrium point, which creates a surplus in the market
price elasticity = ?
% change in quantity demanded or supplied / % change in price
what is an inferior good?
one for which demand declines as income increases
inflation rate = ?
consumer price index = (current / base) x 100
inflation = (CPI this period - last period) / last period x 100
what does the graph look like when supply/demand is perfectly inelastic?
a vertical line bc quantity demanded/supplied is insensitive to price changes (i.e., quantity remains the same regardless of price)
cross elasticity = ?
% change in quantity demanded of competitor product / % change in price
*positive number means that goods are substitute goods
income elasticity = ?
% change in demand / % change in family income
*negative number means that the good is inferior
