Economics

• Surplus


  Excess in supply
• Shortage


  Excess demand for the quantity supplied
• Equilibrium price


  The price at which the producer can sell all the units they want to produce and the buyer can buy all the units they want
• The price elasticity of demand for a certain good tends to be smaller in the long run than in the short run
• The equilibrium point is the level where the demand and supply curves intersect
• If the price is above the equilibrium level, the quantity demanded is greater than the quantity supplied
• If the price is below the equilibrium point, the quantity demanded is lesser than the quantity supplied
• Price


  acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions.  If a good is in shortage – price will tend to ri
• • First chart show the market price is the point that the supply and demand curves intersect. (Judge, S. 2020)
  • The second chart shows a surplus – the quantity is greater than demand. When quantity is greater than demand it causes prices to go down.


  Figure 1 and figure 2

  
• Demand


  the willingness of the consumers to buy goods and services.
• Equilibrium 


  is a point of balance or a point of rest. It is also called “market-clearing price”
• Demand curve


  Is always downward sloping due to the law of diminishing marginal

  utility.
• The Law of Supply 


  demonstrates the quantities that will be sold at a given price. The higher the price, the higher The quantity supplied and vice versa.
• The law of supply says..

  “as the price of a product increases, companies will produce more of the Product”.
• How Do Supply and Demand Create an Equilibrium Price?

  • demand curve -downward sloping
  • Supply curve is a vertical line
  • Supply curve - slopes upward
  • Equilibrium point - the two slopes will intersect
• Price elasticity 


  measures the responsiveness of the quantity demanded or supplied of a good to a change in its price
• Elastic demand or supply curve


  indicates that quantity demanded or supplied respond to price changes in a greater than proportional manner.
• Inelastic demand or supply curve 


  is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied.
• Unitary elasticity


  means that a given percentage changes in price leads to an equal percentage change in quantity demanded or supplied.
• The price elasticity of demand

  -the mathematical value is negative. A negative value indicates an

  inverse relationship between price and the quantity demanded. But the negative

  sign is ignored (
• Price Elasticity of Demand (PED)= % change in quantity demanded % Change in price
• Elastic Demand (PED > 1)


  the percentage change in price brings about a more than proportionate change in quantity demanded.
• Inelastic Demand (coefficient of the elasticity is less than 1)


  is when an increase in price causes a smaller % fall in demand.
• Unitary Elastic Demand


  When the percentage change in demand is equal to the percentage change in price, the product is said to have Unitary Elastic demand.
• Perfectly Elastic


  a small percentage change in price brings about a change in quantity demanded from zero to infinity.
• Normal goods


  are those goods for which the demand rises as consumer income rises; positive income elasticity of demand so as consumers’ income rises more is demanded at each price. These goods shift to the right as income rises.
• Inferior goods


  the demand decreases when consumer income rises; demand increases when consumer income decreases)
• Marginal cost


  the cost of producing one more unit keeps rising as output rises or marginal cost rises rapidly with an increase in output, the rate of output production will be limited.
• Time


  Over time price elasticity of supply tends to become more elastic.
• Number of firms


  The larger the number of firms, the more likely the supply is elastic. The firms can jump in to fill in the void in supply.
• Mobility of Factors of Production- 


  If factors of production are movable, the price elasticity of supply tends to be more elastic.
• Capacity 


  If firms have spare capacity, the price elasticity of supply is elastic.
• Determinants of Price Elasticity of Supply

  • Marginal Cost
  • Time
  • Number of firms
  • Mobility of Factors of Production
  • Capacity