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Flashcards in Supply and Demand Deck (20)
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1

Law of Demand

As the price of a good/service rises there is a decrease in the quantity demanded.

2

Define demand

The amount of a good or service that buyers are willing and able to purchase at a given price.

3

Non-price determinants of demand

1) Change in income
2) Consumer preferences
3) Prices of substitute and complement goods
4) Demographic changes

4

What causes a move along the demand curve?

Change in the price of the good or service.

5

What causes a shift of the demand curve?

Change in a non-price determinant of demand.

6

Law of Supply

As the price of a good/service increases, the amount firms choose to supply increases.

7

Define supply

The quantity of a good or service that firms choose to produce at a given price.

8

Non-price determinants of supply

1) Costs of factors of production
2) Technology
3) Price of jointly or competitively supplied goods
4) Expectations about future prices
5) Indirect taxes
6) Subsidies
7) The number of firms

9

What causes a move along the supply curve?

A change in the price of the good/service

10

What causes a shift of the supply curve?

A change in a non-price determinant of supply

11

When is the market be at equilibrium?

When quantity demanded equals quantity supplied

12

Define Price Elasticity of Demand

PED is the responsiveness of the quantity demanded to a change in price. Percentage change in quantity demanded for a 1% change in price.

13

Determinants of PED

1) Number and closeness of substitutes
2) Degree of necessity
3) Time period being considered
4) Proportion of income spent on the good

14

What is the value of PED when demand is (perfectly) elastic, unit elastic and (perfectly) inelastic?

Perfectly elastic - infinite
Elastic >1
Unit elastic = 1
Inelastic <1
Perfectly inelastic =0

15

Define the cross-price elasticity of demand

The responsiveness of quantity demanded of a product to changes in the price of a related product (substitute of complement good/service)

16

What is the XED for a substitute good and for a complement good?

Substitute: XED>0
Complement: XED<0

17

Define income elasticity of demand

The responsiveness to quantity demanded to a change in income. Percentage change in quantity demanded for a 1% change in income.

18

What is the YED of a necessity, luxury and inferior good?

Necessity: YED<1
Luxury: YED>1
Inferior: YED<0

19

Define price elasticity of supply

The responsiveness of quantity supplied to a change in the price of the product. Percentage change in quantity supplied for a 1% change in price.

20

Determinants of PES

1) Time period being considered
2) Mobility of factors of production
3) Unused capacity
4) Ability to store stocks