Specialization

An individual or business focuses on producing one product and trades for other products they want

What are the 5 demand shifters?

1. Preferences 2. Number of buyers 3. Income 4. Price of related goods 5. Expectations

Elasticity

Relates the percent change in one variable to the percent change in another variable

Price Elasticity of Demand and formula

- The percent change in the quantity demanded for a 1 percent increase in price - Elasticity of Demand = % Change in Q / % Change in P - Q is Quantity Demanded and P is the Price - Outputs a negative value because of the Law of Demand

When |Elasticity of Demand| > 1, the Price Elasticity of Demand is _ When |Elasticity of Demand| < 1, the Price Elasticity of Demand is _

elastic; inelastic

If you use the midpoint method instead, then the Price of Elasticity of Demand is the same whether you use _ to calculate it

a price increase or a price decrease;

Income elasticity and formula

- The percent change in the quantity demanded for a 1 percent increase in income - Income Elasticity = % Change in Q / % Change in I - Q is Quantity Demanded and I is Income

Normal Good Income Elasticity: Income Elasticity greater/less than _ Inferior Good Income Elasticity: Income Elasticity greater/less than _

greater than 0; less than 0

Cross-Price Elasticity and formula

The percent change in the quantity demanded for a 1 percent increase in the price of another, related good - Elasticity of Apples for Bananas = % Change in Q of A / % Change in P of B

Substitutes Cross-Prce Elasticity: Cross-Price Elasticity: Elasticity of A for B greater/less than _ Complements Cross-Prce Elasticity: Cross-Price Elasticity: Elasticity of A for B greater/less than _

greater than 0; less than 0

What are the 4 factors that afect the Price Elasticity of Demand?

1. Availability of Close Substitutes 2. Expenditure Share - Necessities vs. Luxuries 3. Definition of the Market 4. Time Horizon

Market Supply

The amount of a good or service sellers are willing to sell

What are 5 examples of supply shifters?

1. Price of inputs 2. Number of sellers 3. Technology 4. Government policies (taxes, subsidies, regulations) 5. Expectations