Learning summary After you have studied this chapter, you should be able to: define effective demand distinguish between individual demand and market demand
distinguish between individual supply and market supply define price elasticity of supply (PES)
explain the factors that influence demand
explain the range of PES
distinguish between movements along and shifts in demand curves
describe the factors that affect PES
define and calculate price elasticity of demand (PED) explain the range of price elasticities of demand describe the factors that affect PED discuss the implications of PED for revenue and business decisions define and calculate income elasticity of demand (YED) distinguish between positive and negative YED discuss the implications of YED for revenue and business decisions
recognise the implications for speed and ease with which businesses react to changed market conditions distinguish between equilibrium and disequilibrium explain the effects of changes in supply and demand on equilibrium price and quantity apply demand and supply analysis outline demand and supply relationships explain the role of the price mechanism in rationing, signalling and transmitting preferences define consumer surplus and producer surplus
define and calculate cross elasticity of demand (XED)
explain the significance of consumer and producer surplus
distinguish between positive and negative XED
describe how consumer surplus and producer surplus are affected by changes in equilibrium price and quantity
discuss the implications of XED for revenue and business decisions
2.01 Demand Effective demand Demand is the willingness and ability to buy a product. Economists sometimes refer to this as effective demand. This is to emphasise that the desire for the product has to be backed up by the money to buy the product.
Chapter 2
The price system and the micro economy
When economists state that e.g. demand for a product is 600 at a price of $18, they mean people will buy that quantity at that price.
Individual and market demand Individual demand is the amount of a product a person is willing and able to buy at each and every price. A demand curve can be plotted to show how much an
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