Market
Law of Demand and Supply
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"
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