Chapter 3 Demand and Supply

➢ The law of demand

The law of demand states that if the price of a good rises, the quantity
demanded will decrease, vice versa, ceteris paribus.

➢ The law of supply

The law of demand states that if the price of a good rises, the quantity
supplied will increase, vice versa, ceteris paribus.

➢ Relative price of Good X

= Money price of Good X ÷ Money price of Good Y

Chapter 4 Demand and Supply

➢ Complement

➢ Substitutes

Chapter 5 Price Elasticity of Demand and Supply

➢ Definition of price elasticity of demand
Price elasticity of demand measures the responsiveness of quantity
demanded of a good to a change in its own price.

➢ Elastic (>1)

➢ Inelastic (<1)

➢ Coefficient of price elasticity of supply

%𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑑
Es = %𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑃𝑟𝑖𝑐𝑒

Es = [ (Q2-Q1) / (P2-P1) ] x [ (P1+P2) / (Q1+Q2) ]

Chapter 6 Price-celling, Price-floor and Quota

➢ Price-celling (Maximum price control)
Lower than the equilibrium price

➢ Price-floor (Minimum price control)

Higher than the equilibrium price
 Chapter 12 Expansion of Firms
➢ Horizontal expansion
It occurs when a firm expands into a business that is engaged in the
same production stage of the same product.

➢ Vertical Backward expansion

When a firm expands into a business engaged in a preceding stage.

➢ Vertical Forward expansion

When a firm expands into a business engaged in a later stage.

➢ Lateral expansion
It occurs when a firm expands into a business of related but not
competing products.

➢ Conglomerate expansion
It occurs when a firm expands into a business of unrelated products.

Chapter 13 Market and Market Structure

➢ Perfect competition
➢ There are large number of buyers and sellers in the market.
➢ The product for exchange is homogeneous.
➢ Free entry and exit of buyers and sellers.
➢ Buyers and sellers have perfect information about the market.

➢ Monopolistic Competition
Monopolist competition is a market structure where features of both
perfect competition and monopoly can be found.

➢ Oligopoly
An oligopoly exists when there are several dominant sellers in the market.

➢ Monopoly
A monopoly exists when there is only one seller of a product that has no
close substitutes.