AP Micro

mico

demand

relationship between the quantity the consumer is willing and able to buy as well as the price of the good

law of demand

as P increases, Q decreases and vice versa

determinants of demand

# - # of buyers

s - substitutes

p - preferences

i - income

c - complements

e - expectation of future prices

reason for movement on supply or demand curve

change in price which causes change in quantity supplied or demanded

supply

quantity which producer is willing and able to sell @ given price

law of supply

is P increases, Q increases and vice versa

determinants of supply

R - resource

O - other good prices

T - taxes

T - technology

E - Expectation of future prices

N - Number of firms

price elasticity of demand (PED)

measures how reactive consumers are to a change in price

PED = %changeQd / %changeP

formula for PED

PED = %changeQd / %changeP

types of elasticity

perfect inelastic

relatively inelastic

unit elastic

relatively elastic

perfectly elastic

ped = ? when perfectly inelastic

ped = 0

ped = ? when relatively inelastic

0 < PED < 1

ped = ? when unit elastic

ped = 1

ped = ? when relatively elastic

1 < PED < infinity

ped = ? when perfectly elastic

ped = infinity

midpoint PED formula

PEM = [(Qnchange - Qchange) /avgQ] / [(Qnchange - Qchange) avgQ]

income elasticity of demand

determines sensitivity of market in relation to change in consumer’s income

income elasticity of demand formula

Ei = %changeQd / %changeIncome

Ei = ? when normal good

Ei > 0

Ei = ? when inferior good

Ei < 0

Ei = ? when luxury good

Ei > 1

Ei = ? when necessary good

0 < Ei < 1

cross-price elasticity

determines whether 2 goods are subs, comps or unrelated

Ea-b = ? when comps

Ea-b < 0

Ea-b = ? when subs

Ea-b > 0

consumer surplus

the difference of the total amount of money the buyers is willing to pay and what they actually pay

producer surplace

the difference of the price that the producer is willing to sell for and what they actually pay for

market disequilibrium

when demand ≠ supply —> causes shortage or surplus

market equilibrium

demand = supply

deadweight loss (DWL)

loss in surplus whcihc occurs when not @ market equilibrium

double shift in supply and demand

will cause either price or quantity to be indeterminate