Transcript price determination

PRICE
DETERMINATION
SUPPLY & DEMAND
DEMAND
What is demand?
The quantity of a good or service that consumers
are willing and able to buy at different prices
What does demand look like?
D
Price
D
Quantity
Demanded
Shifts in demand
price
D
D1
D2
quantity
Factors affecting demand
Changes in peoples incomes
Changes in income taxes
Changes in the population
Changes in the price of other goods
Changes in tastes or fashions
Advertising
Changes to government legislation
Changes in the weather
SUPPLY
What is supply?
“The amount of good or service producers are
willing and able to produce at different prices”
What does supply look like?
S
price
S
Quantity supplied
Shifts in supply
Price
S2
S
Quantity
S1
Factors affecting supply
Changes in the price of other commodities
Changes in the cost of the factors of production
Technical progress
Changes in the weather
Government taxation or subsidies
Finding the Equilibrium
The price of the product can then be set, it is the
point where demand meets supply.
D
S
S
D
price
P
Q
quantity
Price Elasticity of Demand
Price elasticity of demand explains how responsive
quantity demanded is with a change in price
If demand increases at a higher rate than price
demand is said to be Price Elastic
If demand increases at a lower rate than price
demand is said to be Price Inelastic
Factors affecting PED
The number of available substitutes
The Period of time
The proportion of Income spent on the
commodity