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Cards In This Set
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What is the demand curve measuring?
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This measures the relationship between price per unit
and the quantity consumers are willing to purchase. This also measures the reservation price or “willingness‐and‐ability‐to‐pay” of the consumer for various quantities. |
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What is the supply curve measuring?
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This measures the relationship between price per unit
and the quantity producers are willing to produce. This also measures the reservation price or marginal cost of production (MC) of the producer for various quantities. |
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How do we find equilibrium?
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Where demand and supply intersect. This is the only price that creates no shortage and no surplus. When indicating equilibrium, be sure to tell what dollar value Pe takes and what quantity Qe takes. Don’t just circle the intersection point on the graph.
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What is the difference between change in demand and change in quantity demanded?
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One indicates a movement along a single demand curve; the other indicates a shift to a brand new demand curve.
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What is the difference between change in supply and change in quantity supplied?
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One indicates a movement along a single supply curve; the other indicates a shift to a brand new supply curve.
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What happens to Pe and Qe when either demand or supply changes?
DEMAND INCREASES |
Shifts right -----> higher price and higher quantity
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What happens to Pe and Qe when either demand or supply changes?
DEMAND DECREASES |
Shifts left ------> lower price and lower quantity
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What happens to Pe and Qe when either demand or supply changes?
SUPPLY INCREASES |
Shifts right ------> lower price and higher quantity
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What happens to Pe and Qe when either demand or supply changes?
SUPPLY DECREASES |
Shifts left ------> higher price and lower quantity
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What happens to Pe and Qe when both demand and supply change?
BOTH DEMAND AND SUPPLY INCREASE |
We don't know what happens to price, but we know quantity increases
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What happens to Pe and Qe when both demand and supply change?
BOTH DEMAND AND SUPPLY DECREASE |
We don't know what happens to price, but we know quantity decreases
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What happens to Pe and Qe when both demand and supply change?
DEMAND INCREASES / SUPPLY DECREASES |
Price increases but we don't know what happens to quantity
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What happens to Pe and Qe when both demand and supply change?
DEMAND DECREASES / SUPPLY INCREASES |
Price decreases, but we don't know what happens to quantity
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What is the price elasticity of demand?
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This tells us how responsive consumers are to price changes for this good. It is measuring the percentage change in quantity demanded. It is a measurement of a movement from one (price, quantity demanded) point on the demand curve to a second (price, quantity demanded) point on the demand curve. Don't forget that this is always a negative number because of the Law of Demand.
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What is the equation for Elasticity of Demand?
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Ed= %ΔQd / %ΔP
OUTPUT IS A NEGATIVE NUMBER |
