290 likes | 451 Views
Supply, Demand, and the Price System. Quick Review – the following information should be in your notes already. Elasticity – a measure of responsiveness to price. Elastic demand – consumers are very sensitive to price changes.
E N D
Quick Review – the following information should be in your notes already.
Elastic demand – consumers are very sensitive to price changes.
Inelastic Demand – consumers show a relatively small response to price changes.
Unit elastic – consumers show a proportional response to price changes.
Determinants of demand elasticity.Urgent?Amount of income requiredAre there substitutes?
Determinant of Supply ElasticityHow fast can suppliers respond?
Supply ShiftersCost of inputsTaxes and SubsidiesProductivityTechnologyNumber of Suppliers
Change / Shift in Supply S1 S2 P Q
Change in quantity supplied S P2 P1 Q2 Q1
Change In Demand P D2 D1 Q
Demand ShiftersConsumer TastesConsumer IncomeConsumer ExpectationsNumber of ConsumersExpectationsSubstitutes / Complements
Change in Quantity Demanded P2 P1 D Q2 Q1
Surplus S P1 D Qd Qs
Shortage S P D Qd Qs
If a price ceiling is lower than the natural market clearing price, a shortage occurs.
Shortage S P $1200 D 1000 2000 Qs Qd
If a price floor is higher than the market clearing price, a surplus will occur.
Surplus of Labor S P $10.00 D Qd Qs