The Market System (ch. 5-8)

answer with definition! :)

Total revenue

amount of money generated from the sale of goods

relationship between price and quantity supplied.

proportionate

Subsidies

governments give money to firms in the form of a grant.

Unitary elastic

the responsiveness of demand is proportionately equal to a change in price.

what happens to supply curve with an increase in indirect taxes

shifts inwards

Inessential goods

big- ticket luxury items

main factor affecting supply

price

Indirect taxes

taxes on spending

A change in FoP can result in

supply curve shift

PED formula

(% change in quantity demanded)/(% change in price)

PED<1

inelastic

PED>1

elastic

PED=0

perfectly inelastic

PED=∞

perfectly elastic

PED=-1

unitary elastic

factors affecting supply (5)

* production costs
* indirect taxes
* subsidies
* changes in technology
* natural factors

impact of increase in production costs on supply curve

supply curve shifts inwards

impact of increase in indirect taxes on supply curve

supply curve shifts inwards

impact of increase in subsidies on supply curve

supply curve shifts outwards

impact of new technology on supply curve

supply curve shifts outwards

impact of natural disasters on supply curve

supply curve shifts inwards

equilibrium price

supply and demand are equ

excess demand

demand is greater than supply, and there are shortages in the market

excess supply

supply is greater than demand and there are unsold goods in the market

what should producers do if there is excess demand

change price of products

what should producers do if there is excess supply

adjust supply

inelastic demand

the change in price results in a proportionality smaller change in the quantity demanded

elastic demand

change in price results in a greater change in quantity demanded

perfectly inelastic

change in price results in no change in quantity demanded

perfectly elastic

increase in price results in zero demand

unitary elastic

responsiveness of demand is proportionately equal to change in price

factors affecting ped (5)

* availability of substitutes
* degree of necessity
* habits
* proportion of income spend on a product
* time

few/no substitutes (inelastic or elastic demand?)

inelastic demand

essential goods (inelastic or elastic demand?)

inelastic demand

habit forming product (inelastic or elastic demand?)

inelastic demand

large proportion of income spent on product (inelastic or elastic demand?)

elastic demand

short term (inelastic or elastic demand?)

inelastic demand

long term (inelastic or elastic demand?)

elastic demand

calculate revenue

price \* quantity