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The price system and microeconomy - Coggle Diagram
The price system and microeconomy
Demand
Refers to the quantity of a product that buyers are willing and able to buy at differente prices per period of time, ceteris paribus
Schedule
.
Price goes up
Decrease in quantity demanded
Prices goes down
Incresase in quantity demanded
There is a in inverse or negative relationship
Features
A linear relationship
Continuos relationship
Time period is weekly
Ceteris paribus
Determinants
Income
Ability to pay
There is a positive relationship between Income and Demand
The price and availability of related prod
Substitutes
Complements
Fashion, taste and attitudes
SHIFT
Right
Demand increases
Increase in income
Increase in price of substitutes
Decrease in the price of complements
Favourable change in fashion
Left
Decrease in the price of substitutes
Increase in the price of complements
Decrease in income
Unfavourable change in fashion
Demand decrease
GOODS
Normal
Where the quantity demanded increase as income increases
Economy go well the demand increase
Inferior
Where the quantity demanded increases as income decreases
Economy go well the demand decrease
Necessity
Type of normal good with a YED close to 0
Superior/Luxury
Normal goods with a YED greater than 1
Supply
The quantity of a product that suppliers are willing and able to sell at different prices over a period of time, ceteris paribus
Suppliers
Sellers of the product
Also reffered as producers
Schedule
.
Positive relationship between price and quantity supplied
Price goes up, supply increase
Price goes down, supply decrease
Features
Causal
Linear
Continuos
Time based
Determinants
Costs
The size and nature of the industry
Change in price of other prod
Goverment policy
Subsidies
Taxes
Weather conditions
SHIFT
Right
Growth of the industry
Decrease in price of competitors goods
Decrease in cost
Increase in subsidies
Supply increase
Left
Decline in the industry
Increase in price of competitors goods
Increase in costs
Increase in indirect taxes
Supply decrease
Movements
SHIFTS
A change in any of the non-price determinants
The whole curve moved
Inside
Extension
An increase in the quantity
Contraction
A decrease in the quantity
ELASTICITY
Measures the responsiveness of one variable after a change in another variable
Distinction
How firmsrespond to a range of changing circumstances in their markets
Elasticity
Numerical measure of responsiveness of one variable following a change in another
Elastic
The change in quantity is greater than the change in price
Inelastic
The change in the quanitty is less than the change in price
PED
Responsiveness of the quantity of D for a product following a change in the price of the prod
Acc
%Change in quantity D / % change in price
Special values
Perfectly ineslastic
Where a change in price has no effect on the quantity of demanded
Consumers are able and willing to pay at any price
PED = 0
Vertical
Perfectly elastic
Where all that is produce at a given price
Is infinite
PED = ∞
Horizontal
Unit elasticity
Where the change in price is relatively the same as the change in quantity demanded
It is exactly matched
PED = 1
Determinants
Availability and attractiveness of substitutes
Consumers will switch from a particular prod when its price goes up
Consideration of luxury or necessity prod
The brand image
Quality and extent
The addictive properties of the prod
Relative expense of the product
The large the proportion of
income
that price represents, the larger the impact is on the consumers income
Time period
Short run
Difficult to change spending patterns
Long run
Easy to adapt to change of prices
The curve
It is price elastic on the upper part
It is price inelastic in the lower portion
It is 1 at the mid point
Account
Percentage change
( (Final value - Start value) / Start value ) X100
YED
The responsiveness of the quantity of demanded for a prod following a change in income
Acc
% Change in quantity D / % Change in income
XED
The responsiveness of the quantity demanded for one prodcut following by a change in price of another prod
Acc
% Change in quantity demand of prod A / % Change in the price of prod B
Positive
The product is SUBSTITUTE
An increase in the price of one good causes an increase in the quantity demanded of the other good
Negative
The product is COMPLEMENT
An increase in price of one product causes a decrease in the demand for another prod
Decision making
Price variations
Difference between
Peak
Off peak
The seasonal pricing
Depend when you buy
Higher prices in certain events or festivals
Gov income
Total expenditure
P x Q = Total expenditure and Total revenue
Demand is price inelastic
The firm is able to increase price to increase revenue
Demand is price elastic
The firm should decrease price to increase revenue
Make product INELASTIC
Advertising
Taking over or merge
Brand image
Monopoly
PES
The responsiveness of the quantity supplied of a product following a change in the price of the prod
Can b e
Individual firm
An industry
Allways positive
Acc
% Change in quantity supplied / % Change in price
Special values
Perfectly inelastic
PES = 0
Vertical
The only quantity that can be supplied
Perfectly elastic
PES = ∞
Horizontal
The price cannot change
Determinants
Availability of stocks
When it has a lot of stock it is
ELASTIC
since the firm can free more products to contrast the increase of prices
Time period
Industries with spare productive capacity tend to have higher PES
Industries with shortages of critical factors inputs tend to have inelastic PES
Productive capacity
When the firms can increase the productive capacity without an increase of price it is more
ELASTIC
The PES for agricultural products is usually more price inelastic than the PES for manufactured goods