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DEMAND AND SUPPLY (DEFINITIONS (DEMAND is defined as the quantity a…
DEMAND AND SUPPLY
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DEFINITIONS
DEMAND is defined as the quantity a consumer is willing and able to buy at each possible price at a given time, ceteris paribus
QUANTITY DEMANDED is defined as the amount or quantity of a good a consumer is willing and able to buy at a given price duringa given period of time, ceteris paribus
SUPPLY is defined as the amount of a good a producer is both willing and able to produce at each possible price during a given period of time, ceteris paribus.
QUANTITY SUPPLIED is defined as the amount of good a producer is both willing and able to produce at a given price during a given period of time, ceteris paribus.
LAW OF DEMAND states that in a given period of time, the quantity of a good demanded is inversely related to its price, ceteris paribus.
SUBSTITUTES are defined as a pair of goods deemed by the consumer to be alternatives of one another, able to derive similar levels of utility.
COMPLEMENTARY GOODS are defined as a pair of goods consumed together by consumers to satisfy the same want.
DERIVED DEMAND is when demand of one good is a result of the demand of another. (complementary goods tend to be in derived demand.)
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GOODS IN JOINT SUPPLY is where the production of more of one leads to the increase in production of another
GOODS IN COMPETITIVE SUPPLY where an increased production of one good leads to the diversion of resources from the production of another good.
PRICE ELASTICITY IF DEMAND is defined as the degree of responsiveness of the quantity demanded to a change in price of the good itself, ceteris paribus
PRICE ELASTICITY OF SUPPLY is defined as the degree of responsiveness of quantity supplied to a change in price of the good itself, ceteris paribus
INCOME ELASTICITY OF DEMAND is defined as the degree of responsiveness of quantity demanded to a change in income, ceteris paribus
CROSS PRICE ELASTICITY OF DEMAND is defined as the measure of responsiveness of the demand of a good to a change in price of another good, ceteris paribus
DEMAND
DETERMINANTS
PRICE DETERMINANTS
LAW OF DEMAND states that the quantity demanded of a good is inversely proportional to its price, ceteris paribus
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LAW OF DIMINISHING MARGINAL UTILITY states that as more and more units of a good are consumed within a period of time, the additional satisfaction or marginal utility derived from the consumption of each successive unit will decrease.
PRICE EFFECT
INCOME EFFECT is when the price of a good falls, ceteris paribus, the same amount of money can be used to buy a larger amount of the good. The purchasing power or real income of the consumer has increased. Therefore, quantity demanded will rise.
SUBSTITUTION EFFECT is when the price of a good falls, ceteris paribus, it becomes relatively cheaper compared to other goods sold in the market. Satisfaction-maximising consumers will switch from relatively more expensive goods to this good, causing quantity demanded to rise.
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SUPPLY
DETERMINANTS
PRICE DETERMINANTS
LAW OF SUPPLY states that in a period of time, there is a direct relationship between the price of the good supplied and its quantity supplied, ceteris paribus. This means that the higher the price of a good, the greater the quantity the producer is willing and able to supply to the market at each given quantity in a period of time.
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