SOME TERMS TO REMEMBER

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➢ Market- a place where buyer and sellers
interact and engage in exchange. ➢ Demand- reflects the consumer’s desire for a commodity. ➢ Supply- the amount of a commodity available for sale. ➢ Aggregate demand- the totality of a group of consumer’s demand. ➢ Aggregate supply- the totality of a group of consumer’s supply. ➢ Supply schedule- the quantities producers are willing to offer for sale at various prices ➢ Demand schedule- the quantities consumers are willing to buy of a good at various prices. ➢ Movement along the curve- a change from one point to another on the same curve. ➢ Shift of the curve- a change in the entire curve caused by a change in the entire demand or supply schedule. ➢ Non-price factors/parameters- are factors other than price that also affect demand or supply ➢ Demand function- shows how quantity demanded is dependent on its determinants. ➢ Supply function- shows how quantity supplied is dependent on its determinants. ➢ Equilibrium- condition of balance or equality DEMAND ✔ Quantity that the buyers are willing to buy ✔ is the desire to own anything, the ability to pay and the willingness to pay for it LAW OF DEMAND ✔ As price increases, demand decreases ✔ as price decreases, demand increases Ceteris Paribus Assumption “Ceteris Paribus”- with all other things are held constant. DETERMINANTS OF DEMAND • tastes or preferences of consumers. • level of consumer income. • prices of related goods. • buyer’s expectations about future prices such as substitutes and complements • population: size and age composition.
PRICE OF ONION (per kilo) 80 70 QUANTIT Y DEMAND 0 20
DEPENDENT VARIABLE=Qd & Qs (Quantity demand & Quantity

DEMAND in MATH’L LANG Qd=160 – 2P
Qd=160-2(50) Qd=160-100 Qd = 60

SHIFTS IN THE DEMAND CURVE • Increase income – to the right • Decrease in income – to the left • Greater taste/preference – to the right • Less taste/preference – to the left • Increase in population – to the right • Decrease in population – to the left • Greater speculation – to the right • Less speculation – to the left SUPPLY ✔ Quantity that sellers are willing to sell. ✔ Is the amount of some product producers are willing and able to sell at a given price all other factors being held constant. LAW OF SUPPLY ✔ As price increases, quantity supplied to increase. ✔ As price decreases, quantity supplied instead decreases. FACTORS INFLUENCING SUPPLY • Cost of production • Availability of economic resources • Number of firms in the market • Techniques of production (technology) • Producer’s goals
SUPPLY SCHEDULE PRICE 20 30 40 50 Qty SUPPLY 0 20 40 60

 Inferior goods – goods for which the demand decreases when consumer income falls.4P = -200 Qs= . • CROSS ELASTICITY OF DEMAND – relates a percentage change in the demand for a good with a percentage change in the price of another good. ✔ The point of equilibrium is subject to change. • INCOME ELASTICITY OF DEMAND – the study of the responsiveness of demand to a change in consumer income.40+2P . the price increases. MARKET EQUILIBRIUM IN MATHEMATICAL LANGUAGE MEP = Qd = Qs MEQ = Qd = Qs Qd=160-2P Qd=160-2P Qs= . ✔ Shifts in either the demand curve alone. • If the supply decreases. E<1 • UNITARY – when a change in a determinant leads to a proportionately equal change in the quantity of demand or supply. or the supply curve alone. E>1 • INELASTIC – when a change in a determinant results in a proportionately lesser change in the quantity of demand or supply. DEMAND AND SUPPLY SCHEDULE .  Normal goods – goods for which consumers' demand increases with an increase in income.60 70 80 100 SUPPLY in MATHEMATICAL LANGAUGE Qs= -40+2y Qs= -40 + 2(50) Qs= -40 + 100 Qs = 60 DEMAND AND SUPPLY CURVE Pt of SHIFTS IN THE SUPPLY CURVE • Increase in number of sellers – to the right • Decrease in number of sellers – to the left • Better technology – to the right • Increase in cost of production – to the right • Decrease in cost of production – to the left • Goals of the firm – it depends MARKET EQUILIBRIUM ✔ Is obtained at the point where demand is equal to supply. TYPES OF ELASTICITY OF DEMAND • PRICE ELASTICITY OF DEMAND – the study of the responsiveness of demand to changes in the price of the good.40+2(50) -4 -4 Qs=60 MEP = 50 MEQ=60 Qty Demand 0 20 40 60 80 100 120 PRICE(P HP) 80 70 60 50 40 30 20 Qty Supply 120 100 80 60 40 20 0 Supply and Demand: An Application • If the demand for a commodity is greater than the available supply. or in both curves at the same time can cause a change in equilibrium point.40+2P Qd=60 -2P-2P = . ELASTICITY • The degree to which a demand or supply curve reacts to a change in price. suppliers with too much stock on hand would be “forced” to unload that commodity even at low prices. E=1 TYPES OF GOODS  Complementary goods – goods which are used together.40-160 Qs= . ✔ Alfred Marshal – was the economist who brings the idea to combine the law of demand and supply. DEGREES OF ELASTICITY • ELASTIC– when a change in a determinant leads to a proportionately greater change in quantity of demand for supply.40 + 2P Qd=160-2(50) 160-2P = .  Substitute good – good that can be used to satisfy the same needs.

PRICE ELASTICITY OF SUPPLY – compares a percentage in the quantity supplied with a percentage change in the price of the good. Q2-Q1 _ PRICE ELASTICITY Q1+Q2 % change in 2 % Q ep = % P = _quantity in price = % change P2-P1 P1+P2 2 INCOME ELASTICITY OF DEMAND Q2-Q1 Qd = quantity Q1+Q2 demand 2 Y = income Y2 + Y1 Y1+Y2 2 CROSS ELASTICITY OF SUPPLY PY2 – PY1 QX2 – Qx1 ec = 2 + Qx1 QX ÷ 2 + PY1 PY .

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