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2. The price system and the microeconomy

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  1. 2.1 Demand and supply curves

    1. • Effective demand

    2. • Individual and market demand and supply

    3. • Determinants of demand

    4. • Determinants of supply

    5. • Causes of a shift in the demand curve (D)

    6. • Causes of a shift in the supply curve (S)

    7. • Distinction between the shift in the demand or supply curve and the movement along these curves

  2. 2.2 Price elasticity, income elasticity and cross elasticity of demand

    1. • Definition of price elasticity, income elasticity and cross elasticity of demand (PED, YED, XED)

    2. • Formulae for and calculation of price elasticity, income elasticity and cross elasticity of demand

    3. • Significance of relative percentage changes, the size and sign of the coefficient of: - price elasticity of demand - income elasticity of demand - cross elasticity of demand

    4. • Descriptions of elasticity values: perfectly elastic, (highly) elastic, unitary elasticity, (highly) inelastic, perfectly inelastic

    5. • Variation in price elasticity of demand along the length of a straight-line demand curve

    6. • Factors affecting: - price elasticity of demand - income elasticity of demand - cross elasticity of demand

    7. • Relationship between price elasticity of demand and total expenditure on a product

    8. • Implications for decision-making of price elasticity, income elasticity and cross elasticity of demand

  3. 2.3 Price elasticity of supply

    1. 2.3.1Price elasticity of supply

      • Definition of price elasticity of supply (PES)

    2. 2.3.2PES formula

      • Formula for and calculation of price elasticity of supply

    3. 2.3.3PES coefficient

      • Significance of relative percentage changes, the size and sign of the coefficient of price elasticity of supply

    4. 2.3.4PES determinants

      • Factors affecting price elasticity of supply

    5. 2.3.5PES and firm response speed

      • Implications for speed and ease with which firms react to changed market conditions

  4. 2.4 The interaction of demand and supply

    1. • Definition of market equilibrium and disequilibrium

    2. • Effects of shifts in demand and supply curves on equilibrium price and quantity

    3. • Relationships between different markets: - joint demand (complements) - alternative demand (substitutes) - derived demand - joint supply

    4. • Functions of price in resource allocation; rationing, signalling (transmission of preferences) and incentivising

  5. 2.5 Consumer and producer surplus

    1. • Meaning and significance of consumer surplus

    2. • Meaning and significance of producer surplus

    3. • Causes of changes in consumer and producer surplus

    4. • Significance of price elasticity of demand and of supply in determining the extent of these changes