All the basics of Supply and Demand which are the foundation of the majority of concepts moving forward.
Demand: the quantity which a consumer/buyer are willing and able to buy at different prices
Law of Demand: As price increases, demand decreases, and as price decreases, demand increases
Determinants of demand:
Substitutes : good/service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex. coffee and tea)
Complements : goods/services that are consumed together (ex. hamburgers and buns)
Income effect: as income increases, people will buy more of normal goods, and less of inferior goods
Normal good : increase in demand when consumerâs income increases (ex. oreos)
Inferior good : increase in demand when consumerâs income decreases (ex. off brand oreos)
Diminishing marginal utility: As more units of a product are consumed, the satisfaction/utility it provides tends to decline
@@Reasons for the Law of Supply@@
Rising prices give greater opportunities to suppliers to earn a profit
With every additional unit, suppliers face an increase in the marginal cost of production
Shifters of supply :
Equation : %âQd/%âP
Midpoint formula : Qd2-Qd1/(Q2d+Qd1)/2 , replace with Qd with price for price
Inelastic demand : TR correlates direct with price
Elastic demand = TR correlates inversely with price
@@Elasticity@@: how much the Q is affected by P.
@@Characteristics of Elastic Demand@@:
@@Characteristics of Inelastic Demand:@@
@@Shapes of elasticity/inelasticity@@
@@PES@@: measures how sensitive are sellers to price changes on goods
@@Characteristics of inelastic Supply:@@
@@Characteristics of Elastic Supply:@@
1 = income elastic, <1 = income inelastic, negative = inferior, positive = normal
@@Equilibrium@@ : occurs when no one is better off doing something else
Consumer surplus : price consumers are willing to pay - actual price
Producer surplus : actual price -price the producer is willing to sell for
Demand increase : price and quantity increase
Demand decrease : price and quantity decrease
Supply increase : price decreases, quantity increases
Supply decrease :Â price increases, quantity decreases
@@Double shift@@ : either price or quantity will be unknown. This rule states that when there is a simultaneous shift in both demand and supply, either price or quantity would stay indeterminate
@@Deadweight loss (DWL)@@ : transactions that should occur, but donât because of government intervention (calculate the area = triangle formula, ½(base x height)
@@Market Disequilibrium:@@
Price floor : minimum price a supplier can charge, price is set above equilibrium (causes shortage)
Price ceiling : maximum price a supplier can charge, price is set below equilibrium (causes surplus)
Quota : upper limit of a quantity that can be bought or sold (known as quantity control)
License : gives an owner the right to supply a good/service
Demand price : the price at which consumers will demand that quantity
Supply price : the price at which producers will supply that quantity
Quota rent : difference between demand price and supply price
Tariffs : tax placed on a good that is imported or exported
Import quota : restriction on the quantity of a good that can be imported