Demand and Supply Flashcards
(16 cards)
What does the demand curve show?
the relation between price and quantity demanded holding other things constant (slopes downward)
What does a supply curve show?
the relation between price and quantity demanded (slopes upward)
What is market equilibrium?
where quantity demanded = quantity supplied
How is a shift in demand shown on a graph?
The demand curve shifts down the supply curve if demand decreases, and up it if it increases
What does a shift in supply look like on a graph?
the supply curve shifts up the demand curve if supply decreases,, or down if it increases
What is market disequilibrium?
Occurs when demand and supply aren’t balance, leaving either a shortage or excess in one of the factors
What is consumer surplus and how is it shown on a graph?
the difference between the max price people are willing to pay and the price they pay.
It is a right-angle triangle, whose base sits on the equilibrium, and is shaded upwards by the demand curve.
What is producer surplus and how is it shown on a graph?
The amount that sellers benefit by selling at a market price higher than what they would be willing to sell at.
An upside-down right-angle triangle that meets the equilibrium, and follows the supply curve.
What is the price elasticity of demand?
Measures the sensitivity of the quantity demanded of a good to change it’s price.
(% change in quanttity demanded/% change in price)
When is demand elastic?
when the price elasticity is greater than -1 i.e if % change in quantity demanded exceeds the change in price
When is demand inelastic?
when the price elasticity lies between -1 and 0 i.e when the % change in quantity demanded is smaller than the change in price
When is demand unit elastic?
When the price elasticity is exactly -1 i.e when the % change in quantity demanded = change in price
What determines the price elasticity?
The ease to which consumers can substitute another good
What is the cross-price elasticity of demand?
% changed in quantity demanded of good A/
% change in the price of good B
What is a GIFFEN goood?
An extreme inferior good.
Necessities consumed by the very poor.
Have positive own price elasticities
What is a VEBLEN good?
An extreme form of a luxury good.
Consumed as a status symbol.
Higher price = higher demand due to reputation
