section 2 pt.2

Created by

Isabella Raimondi

Cards (53)

what is equilibrium price?
the price where demand and supply are equal
what is disequilibrium?
a situation where demand and supply are not equal because of a surplus or a shortage
what is excess supply?
the amount by which supply is greater than demand (surplus)
how to move from market disequilibrium to equilibrium in surplus?

firms would have to put down prices to clear the excess supply so qs will contract and qd will extend
what is excess demand?
the amount by which demand is greater than supply
how to move market disequilibrium to market equilibrium in surplus?
firms will have to put down prices to clear the excess supply, so QS will contract and QD will extend
how to move market disequilibrium to market equilibrium in shortages?
firms would increase price to clear out the excess demand, so QD will contract and QS will extend
changes in demand will cause a change in price and a movement along the supply curve
what is the effect of an increase in demand?
it creates a shortage so prices will go up and there will be an extension in supply to reach equilibrium
effects of a decrease in demand?
it creates a surplus so firms will lower prices and supply will contract
effects of an increase in supply?
creates a surplus so prices will go down and there will be an extension in demand
effects of a decrease in supply?
creates a shortage so prices will rise, causing a contraction in demand
what is price elasticity of demand?
a measure of the responsiveness of the quantity demanded to a change in price
how do you calculate PED?
calculated by dividing the percentage change in quantity demanded by the percentage change in price.
how to calculate changes in demand / price?
(new value - old value) divided by old value x 100
what is elastic demand?
when the quantity demanded changes by a greater percentage than the change in price. ped is more than 1 but less than infinity
what is inelastic demand?
when the quantity demanded changes by a smaller percentage than the change in price. ped is less than 1 but greater than 0
what are the determinants of PED?
availiability of substitutes , addictiveness of products, price of a product as a proportion of income and time period
what is a perfectly elastic demand?
when a change in price causes a complete change in the quantity demanded ( it falls to 0 and is shown as a horizontal straight line). value of infinite
what is a perfectly inelastic demand?
when a change in price has no effect on the quantity demanded and is completely unresponsive ( shown as a vertical line)
what is unit elasticity of demand?
when a change in price causes an equal change in QD, leaving total revenue unchanged (value of 1)
in an inelastic demand, a change in price will cause total revenue to move in the same direction
in an elastic demand, revenue moves in the opposite direction due to changes in price
if the product is elastic, producer can lower prices to increase revenue and if the product is inelastic, producer can raise prices to increase revenue
as price falls, demand becomes more inelastic
PED becomes more elastic as the price of a product rises
a shift in the demand curve to the right reduces PED at any price
when there is a decrease in demand, PED becomes more elastic
what is price elasticity of supply?
a measure of the responsiveness of the quantity supplied to a change in price
what is elastic supply? 
when the quantity supplied changes by a greater percentage than the change in price. PES is more than 1
what is inelastic supply?
when the quantity supplied changes by a smaller percentage than the change in price. PES is less than 1
determinants of PES?
time taken to produce it, cost of altering its supply, availability of raw materials and feasibility of storing it
what is perfectly inelastic supply?
when a change in price has no effect of the quantity supplied, has a value of 0, completely unresponsive and is shown as a vertical line
what is perfectly elastic supply? 
when a change in price causes a complete change in quantity supplied, has infinite value and is shown as a horizontal line
what is unit PES?
when a change in price causes an equal percentage change in the quantity supplied, has a value of 1. its any curve that starts at the origin
changes in PES?
as time period increases, supply is more elastic and advanced in technology increases elasticity because lowers production time and cost
both consumers and producers benefit from elastic supply
how do consumers benefit from elastic supply?
supply is responsive to consumer demand and sales may rise without there having to be a large increase in price
how do producers benefit from elastic supply?
higher profits (the quicker they can adjust to changes in quantity demanded and price), government giving subsidies and production flexibility
how to increase PES?
creating more space capacity, maintaining larger inventories and using more modern technology