market demand - sum of individual demands
- more consumers enter market >> market demand curve shifts more to the right
- factors influence consumer demands >> also affect market demands
- if individual demands are all the same, then market demand is just some multiple of the individual demands
elasticity of demand = (DQ/Q) / (DP/P) = (P/Q) (DQ/DP)
- inelastic >> demand relatively unresponsive to price changes
- for goods that people need, willing to pay more for
- consumers may buy less, but ultimately spend the same or more
- elastic >> demand decreases as price goes up
- consumers will buy/spend less
- isoelastic >> elasticity of demand stays constant
- point elasticity of demand = (P/Q) (1/slope)
- instantaneous price elasticity at some point on the demand curve
- arc elasticity = (Pavg/Qavg) (DQ/DP)
- elasticity over a range of prices
consumer surplus - difference between what consumer is willing to pay and what consumer actually pays
- calculated by area between demand curve and market price (triangular shape)
- there will always be consumers willing to pay more than equilibrium market price
- there will always be producers willing to sell for less than equilibrium market price
- as a result, a surplus arises
- price floor changes the amount of surplus
- relatively, it increases the supplier surplus, as compared to before
Subject:
Subject X2:
