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Erstellt / Aktualisiert 23.01.2022 / 23.01.2022
Lizenzierung Keine Angabe     (Leipzig University)
0 Exakte Antworten 40 Text Antworten 0 Multiple Choice Antworten
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For what reasons might a demand curve shift to the right or left? 

income - increase (right)

Preferences - the good becomes preferred (right)

Prices of substitute goods - price increase for substitutes (right)

Price of complementary goods - price decrease for complements (right)

Expectations - price expected to increase (right) 


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Normal vs. Inferior Goods

  • as income increases, the demand for a normal good will increase
  • as income increases, the demand for an inferior good will decrease. 

What is normal/inferior is subjective to the consumer. 

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Price Elasticity of Demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good. 

|n| = 0; perfectly inelastic             |n| = infinity; perfectly elastic              |n| = 1; unit elastic 


elastic = sensitive to price change |n| > 1

inelastic = not sensiive to price change |n| < 1



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Determinants of Price Elasticity 

  • availalbilities of close substitutes
    • no substitutes = less sensitive to changes in price (less elastic)
  • Necessities vs. luxuries
    • necessities are less sensitive to changes in price (less elastic)
  • Definition of market
    • the more narrow the market, the more sensitive to change sin price (more elastic)
    • market of 'apples' is more elastic than the market for 'food or fruit'
  • Time horizon
    • in shorter timeframes, the less sensitive to changes in price (less elastic)
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Determinants of Supply (shifts in supply curve to the right or left)

1. Price leads to movement along the supply curve: changes in quantity supplied 

2. Input prices: change in price per unit of good: when the price increases, the supply decreases (shift to left)

3. Technology: efficient production of products: more efficient, more supply (shift to right)

4. Expectations: if producers expect price per unit to increase, then less supply (shift to left)

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Market Equilibrium

  • where quantity supplied = quantity demanded
  • most efficient oucome for consumer and producer
  • the point where the supply and demand curves intercept is the equilibrium point 
    • i.e., when S (positive slope) = D (negative slope) ; that is the equilibrium point 
  • If D > S (due to a fixed price) then there is excess demand and the supply is unable to meet the demand in the market
    • counter act by:
      • ration the good (i.e., food stamps)
      • subsidize the supply (government gives funds to the supplier to help them meet the demand)


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Formulas: slope / elasticity of demand / point elasticity of demand 

slope = m=(y2-y1)/(x2-x1)

price elasticity of demand = % change Q / % change P 

point elasticity of demand = [(Q2 – Q1)/Q1] / [(P2 – P1)/P1] OR slope x P/Q

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Producer Surplus 

  • Consumer surplus measures the benefit that buyers receive from a good as the buyers themselves perceive it.

  • Willingness to pay is the maximum amount that a buyer will pay for a good - is the price lower/higher than how much you value the good 

    • Consumer surplus = willingness to pay – price