Supply and Demand

Elasticity of Demand is a measure of how consumers react to a change in price.

• Elastic
• Demand is very sensitive to a change in price.
• Product is not a necessity and there are available substitutes.
• Example: Soda, Steaks and Fur coats.
• E > 1

• Inelastic
• Demand not very sensitive to a change in price.
• Product is a necessity
• Few or no substitutes
• Customers buy no matter what.
• Example: Insulin and Gas.
• I < 1 

•  Unitary Elastic
• Perfect society and economy
• U = 1

1.  Step 1: Quantity = New quantity - Old quantity/Old quantity
2. Step 2: Price = New price - Old price/Old price
3. Step 3: PED = Percentage △ in quantity/Percentage △ in price
4. Total Revenue (TR) - total amount of money a firm receives from selling goods and services. Price x Quantity

• Equilibrium - It is the point where the supply curve and demand curve intersect
• Excess demand - It occurs when quantity demanded is greater than quantity supply, results in a shortage.
• Shortage - Consumers cannot get quantities of items they desire.

 

• Price ceiling - When the government puts a legal limit on how high the price of a product can be. Rent control.
• Excess Supply - Quantity supply > Quantity demanded this results in a surplus where producers have inventories that people can't get rid of.

 

• Price floor - lowest legal price a commodity can be sold at. Used by government to prevent from prices from being too low. 

If you need more info:
http://www.investopedia.com/university/economics/economics3.asp