Flashcards in economics - supply/demand formulas Deck (32)

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## P

### Price of Goods or Services

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## M

### Income of consumers

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## Pr

###
Prices of related goods & services

(Substitutes/compliments)

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##
Pretty T

### Taste patterns of consumers

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## Pe

### Expected future price of product

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## N

### Number of consumers in Market

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## General Demand Function

### Qd= f(P, M, Pr, T, Pe, N)

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## "b" through "g" are:

###
Slope parameters of Demand Curve

While "a" is intercept term

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## Sign of parameter shows how variable is related to Qd. They are:

###
Positive - direct relationship

Ex: Qd = bP

If price of b inc then Qd

Negative - inverse relationship

Ex: Qd = -bP

If price of b inc the. Qd decreases

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## General Demand Formula

### Qd = a + bP, cM, dPr, E T, fPe, gN

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## Direct Demand Function

### Qd=f(P)

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## Law of Demand

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Inverse relationship:

Qd inc. when P falls, others constant

Qd dec. when P rises, others constant

^Qd / ^P must be negative

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## Inverse Demand Function

###
P is plotted on vertical axis

Qd is plotted on horizontal axis

Equation is inverse:

p=f(Qd)

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## A point on a Graph of Demand curve shows

###
Max amount of a good that will be purchased at a given price

Or

Max price consumers will pay for a specific amount of the food

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##
Shift in Demand Curve

Also

Shift in Supply Curve

###
Right for more

Left for less

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## General Supply Formula

### Qs = h + kP + lPi + mPr + nT + rPe+ sF

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## "k" through "f" are:

###
Slope parameters of Supply Curve

While "h" is intercept term

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## Sign of parameter shows how variable is related to Qd. They are:

###
Positive - direct relationship

Negative - inverse relationship

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## Direct Supply Function

###
Qd = f(P)

Expect that if price falls Quantity supplies will fall

Or

Expect that if price increases wha Ruth supplies will also increase

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##
Inverse Supply Function

###
P = f(Qs)

P plotted on vertical axis

Qs plotted on horizontal axis

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## A point on a direct Supply curve

###
Maximum amount of a good that will be offered for sale at a given price

And

Minimum m price necessary to induce producers to voluntarily offer a particular quantities for sale.

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## Market Equilibrium

###
Intersect point of the Demand and Supply curves

Price where Qd=Qs

This is known as market clearing or equilibrium price

Price adjusts to eliminate excess demand or surplus

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##
Market equilibrium

excess demand (shortage)

###
Exists when quantity demanded exceeds quantity supplied

At P

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##
Market Equilibrium

Excess Supply (Surplus)

###
Exists when quantity supplied exceeds quantity demanded

At P > P EQ

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## Qualitative forecast

### Predicts only the direction in which an economic variable will move

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## Quantitative forecast

### Protects both the direction and the magnitude of the change in an economic variable

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## When demand and supply shift simultaneously

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We can predict either the change in price or the change in quantity but not both

If you can predict P then the change into depends on the size of the curve shifts if you can protect you in the change and P also depends on the size in the curve shifts

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## Ceiling price

### Maximum price of government permit sellers to charge for a good one the ceiling price is below P equilibrium Q a shortage of hers

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## Floor price

### The minimum price government permit sellers to change for good. One floor price is above P equilibrium Q a surplus occurs

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