ECON 102 QUESTIONS AND ANSWERS LATEST UPDATED
VERSION, GRADED A+.
Market
a group of buyers and sellers of a particular product.
competitive market
many buyers and sellers, each has a negligible effect on price.
Substitutes
an increase in the price of one
causes an increase in demand for the other.
Complements
an increase in the price of one
causes a fall in demand for the other.
Three steps to analyzing Changes in Equilibrium
1) Decide whether event shifts S Curve D curve or both
2) Decide direction curve shifts
3) Use supply & demand diagram to see how the shift changes equilibrium price & qty
Calculating Percentage Changes
End value - start value / mid- value x 100% = % change
Price elasticity of demand
measures how much the qty demanded responds to a change in price.
The Determinants of Price Elasticity:
A Summary
The price elasticity of demand depends on:
the extent to which close substitutes are available
whether the good is a necessity or a luxury
how broadly (inelastic) or narrowly (elastic due to avail of substitutes) the good is defined
the percentage of a person's budget
the time horizon: elasticity is higher in the long run than the short run
Income Elasticity of demand Positive + #
Normal Good
Income Elasticity of demand - #
Inferior Good
VERSION, GRADED A+.
Market
a group of buyers and sellers of a particular product.
competitive market
many buyers and sellers, each has a negligible effect on price.
Substitutes
an increase in the price of one
causes an increase in demand for the other.
Complements
an increase in the price of one
causes a fall in demand for the other.
Three steps to analyzing Changes in Equilibrium
1) Decide whether event shifts S Curve D curve or both
2) Decide direction curve shifts
3) Use supply & demand diagram to see how the shift changes equilibrium price & qty
Calculating Percentage Changes
End value - start value / mid- value x 100% = % change
Price elasticity of demand
measures how much the qty demanded responds to a change in price.
The Determinants of Price Elasticity:
A Summary
The price elasticity of demand depends on:
the extent to which close substitutes are available
whether the good is a necessity or a luxury
how broadly (inelastic) or narrowly (elastic due to avail of substitutes) the good is defined
the percentage of a person's budget
the time horizon: elasticity is higher in the long run than the short run
Income Elasticity of demand Positive + #
Normal Good
Income Elasticity of demand - #
Inferior Good
