Demand and Supply

Topic 1 - Economics

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Demand and Supply by Mind Map: Demand and Supply

1. relations between products

1.1. Substitutes

1.1.1. Increase in the price of one good (X) will cause an increase in demand for another good (Y)

1.1.2. ^Px -> ^Dy increase in price X increase in demand Y

1.2. Complements

1.2.1. Increase in the price of one good X will lead to the fall in demand for another good

1.2.2. ^Px - > ˇDx -> ˇDy increase in price X ˇ decrease in demand X & Y

2. Demand

2.1. Quantity demanded of X is the amount of a commodity that households wish to purchase

2.2. increase in P, decrease in D

2.3. increase in I, increase in D provided X is a normal good

2.4. Demand curve

2.4.1. Negative relationship fall in price, increase in quantity demanded

2.4.1.1. increase in demand shifts the entire demand curve to the right

2.4.2. P against Quantity of X

3. Supply

3.1. The amount of a commodity that firms are able and willing to sell (Desired, not actual sale)

3.2. Sx = f (Px, Tech, W, r) Px = Price of commodity Te = state of technology < inversly related > W = Wages R = interest rates

3.2.1. improvement in technology will cause more outputs to be produced with the same amount of imput

3.2.2. Wages and Interest Rates will lead to an increase in the cost of production

3.3. Supply Curve

3.3.1. Positive Relationship increase in prices will lead to an increase in quantity supplied

4. Determination of Prices

4.1. Equilibrum occurs when demand = supply

4.1.1. Above equilibrium price, P will fall

4.1.2. Below equilibrium price, P will rise

5. Elasticity of demand

5.1. Elasticity refers to the responsiveness of demand to changes in prices, income, prices.

5.2. income elasticity of demand % change in demand X = -------------------------- % change in income

5.3. Cross price elasticity of demand

5.3.1. % change in demand X = -------------------------- % change price Y

5.3.2. if npy is +ve, the good is a substitute

5.3.2.1. ^Py -> ^Dx

5.4. Price Elasticity of demand

5.4.1. % change in demand X = -------------------------- % change in price X

5.4.1.1. always -ve for a -ve slope demand curve

5.4.1.2. demand for a good is more sensitive when there is more substitutes in the market

5.4.2. Elastic

5.4.2.1. >1% change in demand per 1% change in price

5.4.2.2. perfectly elastic

5.4.3. Inelastic

5.4.3.1. <1% change in demand per 1% change in price

5.4.3.2. perfectly inelastic