Market equilibrium, PED, PES, YED 1.4 to 1.7

• Market equilibrium is where supply meets demand.
• In a market, prices will increases or decrease until the equilibrium price is achieved.
• Total revenue (or total expenditure) is the total amount of money firms get for selling their good or service.
• $TR =$$P *$$Q$
• Excess demand is where demand is greater than supply. There is a shortage in the market.
• Excess demand = quantity demanded - quantity supplied
• If the price is below the equilibrium price there will be excess demand, and prices will increase.
• If the price is above the equilibrium price there will be excess supply, and prices will decrease.
• Excess supply = Quantity supplied - quantity demanded
• When supply of a good or service is fixed, the supply of the product will be vertical.
• PED stands for Price Elasticity of Demand.
• PED measures the responsiveness of quantity demanded to a change in price of a good or service.
• Formula for PED:

  PED = % change in quantity demanded/ % change in price
• % change = (new - original) / original * 100
• When the PED is 0, demand is perfectly inelastic. This means that there will be no percentage change in demand for the product when the price changes.

  
• When the PED is between -1 and 0, demand is inelastic. This means that the percentage change in demand for the product is smaller than the percentage change in its price.

  
• When the PED is -1, demand is unitary elastic. This means that the percentage change in demand for the product is the same as the percentage change in its price.
• When the PED is between -∞ and -1, demand is elastic. This means that the percentage change in demand for the product is bigger than the percentage change in its price.

  
• When the PED is ∞, demand is perfectly elastic. This means that demand for the product completely stops with any percentage change in its price.

  
• Factors influencing PED:

  1. Number of substitutes the product has and how close they are.
  2. Degree of habit/ necessity/ addiction.
  3. Proportion of income spent on the good or service.
  4. Time since the change in price of the product.
• PES stands for Price Elasticity of Supply.
• PES measures the responsiveness of quantity supplied to a change in the price of a good or service.
• Formula for PES:

  PES = % change in quantity supplied / % change in price
• When the PES is 0, supply is perfectly inelastic. This means that there's no percentage change in quantity supplied when price changes.

  
• When the PES is between 0 and 1, supply is inelastic. This means that the percentage change in quantity supplied is smaller than the percentage change in its price.

  
• When the PES is 1, supply is unitary elastic. This means that the percentage change in quantity supplied is the same as the percentage change in its price.
• When the PES is between 1 and ∞, supply is elastic. This means that the percentage change in quantity supplied is bigger than the percentage change in price.

  
• Factors influencing PES:

  1. Factors of production needed to produce and how easy it is to get them.
  2. Availability of stock.
  3. Spare capacity.
  4. Time needed to produce it.
  5. Time since the change in price of the product.
• YED stands for Income Elasticity of Demand.
• YED measures the responsiveness of demand to a change in income.
• Formula for YED:

  YED = % change in quantity demanded / % change in income
• When the YED is negative, the good is inferior. This means that when income increases, quantity demanded for the product decreases.

  
• Normal goods have positive YED values. Necessities have a YED between 0 and 1; luxuries have a YED between 1 and ∞.

  
• For necessities (normal goods), the percentage change in quantity demanded is smaller than the percentage change in income.
• For luxuries (normal goods), the percentage change in quantity demanded is bigger than the percentage change in income.
• When the PED is ∞, demand is perfectly elastic. This means that the demand of the product completely stops with any percentage change in price.