microeconomics- supply demand and elasticity

week 1 topic 2

what is the economy?

economics studies how people, businesses and governments make choices and use resources

supply

quantity producers are willing to sell at different prices

law of supply

higher price, more supplied. lower price, less supplied

supply curve slopes upward, lower production costs shift right

law of demand

higher price, less demanded. lower price, more demanded

demand curve slopes downward, higher incomes shift demand right

substitutes

price of one rises, demand for other rises eg butter and margarine

complements

price of one rises, demand for other falls eg coffee and sugar

surplus

supply is greater than demand causing prices to fall

shortage

demand is greater than supply causing prices to rise

price elasticity of demand formula

% change in quantity demanded / % change in price

elastic demand

consumers respond strongly to price changes

inelastic demand

consumers respond little to price changes

long run elasticity

more elastic in long run as consumers and firms have more time to adjust