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

Price of Goods or Services

1

M

Income of consumers

2

Pr

Prices of related goods & services
(Substitutes/compliments)

3

Pretty T

Taste patterns of consumers

4

Pe

Expected future price of product

5

N

Number of consumers in Market

6

General Demand Function

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

7

"b" through "g" are:

Slope parameters of Demand Curve

While "a" is intercept term

8

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

9

General Demand Formula

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

10

Direct Demand Function

Qd=f(P)

11

Law of Demand

Inverse relationship:
Qd inc. when P falls, others constant
Qd dec. when P rises, others constant
^Qd / ^P must be negative

12

Inverse Demand Function

P is plotted on vertical axis
Qd is plotted on horizontal axis
Equation is inverse:
p=f(Qd)

13

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

14

Shift in Demand Curve
Also
Shift in Supply Curve

Right for more
Left for less

15

General Supply Formula

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

16

"k" through "f" are:

Slope parameters of Supply Curve

While "h" is intercept term

17

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

Positive - direct relationship
Negative - inverse relationship

18

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

19

Inverse Supply Function

P = f(Qs)

P plotted on vertical axis
Qs plotted on horizontal axis

20

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.

21

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

22

Market equilibrium

excess demand (shortage)

Exists when quantity demanded exceeds quantity supplied
At P

23

Market Equilibrium

Excess Supply (Surplus)

Exists when quantity supplied exceeds quantity demanded

At P > P EQ

24

Qualitative forecast

Predicts only the direction in which an economic variable will move

25

Quantitative forecast

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

26

When demand and supply shift simultaneously

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

27

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

28

Floor price

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

29

P I

Input prices