Supply and Demand Analysis Quiz

Supply and Demand Analysis

• Supply: The amount of a good or service that producers are willing and able to offer at various prices over a period of time.
• Demand: The amount of a good or service that consumers are willing and able to purchase at various prices over a period of time.
• Market Equilibrium: The point where the quantity demanded equals the quantity supplied. This results in a stable market price.
• Market Equilibrium Price: The price at which the amount consumers want to buy matches the amount producers want to sell.
• Market Equilibrium Quantity: The quantity of a good or service that is bought and sold at the equilibrium price.
• Surplus: Occurs when quantity supplied exceeds quantity demanded at a given price.
• Shortage: Occurs when quantity demanded exceeds quantity supplied at a given price.

Market Equilibrium

• Diagram: A graph illustrating the market equilibrium where the supply and demand curves intersect.
• Shifts in curves: Factors influencing supply and demand can cause the curves to shift, resulting in a new equilibrium.
• Examples of shifts: Changes in consumer preferences, prices of related goods, or production costs.

Price Elasticity of Demand (PED)

• PED: Measures the responsiveness of quantity demanded to a change in price. Formula: % change in quantity demanded / % change in price.
• Types: Elastic (PED > 1: large percentage change in demand compared to price), Inelastic (PED < 1: small percentage change in demand compared to price), Unit Elastic (PED = 1: Percentage change in demand equals percentage change in price).
• Factors influencing PED: Availability of substitutes, proportion of income spent on the good.

Income Elasticity of Demand (YED)

• YED: Measures the responsiveness of quantity demanded to a change in income. Formula: % change in quantity demanded / % change in income.
• Positive YED: Normal goods (demand increases with income).
• Negative YED: Inferior goods (demand decreases with income).
• Value > 1: Luxury goods (demand increases more than proportionally with income).

Market Structures

• Perfect Competition: Many buyers and sellers, homogenous products, free entry and exit, no influence on price (price takers).
• Monopoly: One seller, unique product, no close substitutes, significant barriers to entry, price maker.
• Oligopoly: Few sellers, significant interdependence, potential for collusion, barriers to entry.
• Monopolistic Competition: Many sellers, differentiated products, some control over price, relatively easy entry and exit.