1.2 Supply and demand

PES, YED, PED, XED, Supply and Demand.

Definition of supply

The quantity of a good that a producer is willing and able to sell at a given time at a given price

What are the 6 determenants of supply

• Production costs

• Technology

• Taxes and substedys

• price of complementry goods

• Firms expectations

• Number of firms in the market

what is Price elsaticity of supply [PES]

• the responsiveness of quantity supplied of a good or service to a change in price of that good or service 

what is the formular for PES

% change in QS / % change in price 

Determenants of PES

• spare production capacity 

• stock of products  + components 

• ease and cost of factor substitution 

• time of production

what is the values of PES and what do they mean

0 - 1 = inelastic ( hard to change )

1 - … = elastic ( easy to change )

what is the Definition of demand

the quantity of a good or service a consumer is willing and able to purshase at a given price in a given time

what is the law of demand

an inverse relationship between quantity demanded and the price of a goods/service

what are the 8 determenants for demand

• marketing 

• trends 

• seasonality 

• poulation structure 

• average income 

• alternative price 

• complementry price 

• price 

what causes movements along both a demand and supply curve

change in price

what is the formular for total revenew

price x quantity

what is YED income elasticity of demand

• the rectiveness of quantity demanded to changes in average income

what is the formular of YED

%change of QD / % change in income 

what are the values for YED and what do they mean 

Less than 0 = Inferior good ( inelastic and demand drops )

0 - 1 = necessity good ( elastic and demand increases )

1 + = luxury good ( elastic and demand increases )

what is PED price elasticity or demand

• the responsiveness of quantity of demand to changes in price of a good or service 

what is the formular for PED

% change in QD / % change in price

what are the values for PED and what do they mean 

0 - -1 = inelastic ( less than proportional to change )

0 = unit elastic ( the same so total revenew dosent change ) 

-1 - … = elastic ( more than proportional change )

what are the determannts of PED

• number of close substitues 

• costs of substituting 

• brand loyalty 

• degree of necessity 

• budjet %

what is the deffinition of XED [cross-price elasticity of demand]

• the proportionality responsiveness of quantity supplied of a good or service to a change in price of that good 

what is the formular for XED

% change in QD of good A / % change of price of good B 

what are the values of XED and what do they mean 

positive = substitutes ( increace in good A = increace in good B )

negitive = complementry ( increace in good A = decreace in Good B )

what type of XED is this

substitutes 

what type of XED is this

complementry 

which way does a demand curve slope?

down 

which way does a supply curve slope?

up