Market

Law of Demand and Supply

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Price changes ( movement ): when the price is decreased automatically the demand goes up as customers will buy more. This is called "excess of demand" // when the price decreased the supply decrease too. This is called "excess of supply"

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If the price of the product decrease, the producers will want to sell less quantity. In this way, the demand will increase since consumers will want to buy a higher quantity of the product at a lower price.

Factors Shift Demand

Income: normal - inferior

Price related goods: complementary - substitute

Taste & Preferences

Future price expectations

Number of consumer

Factors Shift Supply

Cost Production

Change Technology

Government intervention ( indirect taxes and subsides )

Future expectations

Price related goods

Weather or natural disasters

Elasticity of Demand

Price Elasticity Demand

Income elasticity Demand

PED = 1 UNITY

PED > 1 ELASTIC

PED < 1 INELASTIC

PED = 0 PERFECTLY INELASTIC ( vertical )

PED = ∞ PERFECTLY ELASTIC ( horizontal )

Normal: + income = + q demand

Necessary: 0 < YED < 1

Luxury: YED > 1

Inferior: + income = - q demand

YED < 0