Topic 2: The Price System

Definitions

Demand

quantities of a product that buyers are willing and able to buy at varies prices per period of time, ceteris paribus

Supply

quantities of a product that firms are willing and able to sell at various prices per period of time, ceteris paribus

Consumer surplus

measure of consumer welfare

Producer surplus

measure of producer surplus

PED

measures the responsiveness of quantity demanded to changes in the price of the good

YED

measures the responsiveness of quantity demanded to a change in income

XED

measures the responsiveness of quantity demanded of product X following a changed in the price of product Y

PES

measures the responsiveness of quantity supplied to changes in the price of the good itself

Indirect tax

a tax imposed on expenditure

Subsidy

payment given by the government to encourage the production or consumption of a particular good or service

Deadweight loss

decrease in consumer and producer surplus that results from an inefficient level of production, loss in total welfare