Ecnomonics notes unit 2: Chapters 4-8

What is the market?

• Could be specific & many different usage

  Can be a physical place

Demand

Is the quantity of a good or service that buyers will purchase

• There is a desire for something

• People must have the ability to purchase it

Law of demand

• The quantity demanded varies inversely with the price as long as other things don't change

• If we are rational consumers when we purchase product if price high we purchase less

• -Price on y-axis,quantity on x-axis

• -Price increase,quantity decrease

Quantity demanded

Is the relationship between price & quantity

Demand schedule & the remaining quality demand

• The demand curve has a negative slope

• The demand curve never exists without the supply curve

Supply

The quantities that sellers will offer for sale at various prices during a given period of time

Quantity supply

• Refers to one relationships that is determined by price

• Specific quantity at a specific price

Price above equilibrium

Quantity supply is greater than the quantity demand this is a surplus

Price below equilibrium

Quantity demanded is greater than the quantity supply this is a shortage

Equilibrium price

The point where supply and demand meet

Both Demand & supply

Shift RIGHT→ increase, Shift LEFT → decrease

Demand (6)

1. Income

2. Population (#’s,demographic etc)

3. Taste & preference (trends in what people like)

4. Expectations (focuses on price)

5. Price of substitute goods (e.g pepsi & coca cola)

6. Complement goods they go together)

Supply(6)

1. Cost(of production)

2. # of sellers

3. Technology

4. Nature & environment

5. Price of related outputs

Elasticity of demand

How responsive the market is when there's a change in price

Elastic

responsive

Inelastic

not responsive

Relative elasticity

Which one changes less → e.g a day is inelastic ss they will buy it no matter what

The curves of elasticity

Total revenue rule

TR=PxQ

Inelastic= P(up) TR(up), P(down) TR (down)

Elastic= P(up) TR(down), P(down) TR (up)

Price elasticity of demand coefficient

Floor price: Above equilibrium

• QS>QD surplus

• Government decides that price has to be above equilibrium

• e.g minimum wage income cant be below 

• ⭑The floor prevents the force from pushing price down to equilibrium

Ceiling price: Is below equilibrium

• QD>QS shortage

• Government decides that price has to be below equilibrium

• e.g rent control, rent cant go above rent control amount

• ⭑The ceiling prevents the force from pushing price up to equilibrium