Understanding Microeconomic Market Dynamics

Supply and Demand Dynamics Revision Sheet

1. 📌 Essentials

• Demand: Quantity consumers are willing to buy at prices; slopes downward.
• Supply Quantity producers are willing to sell at various prices; slopes upward.
• Price Elasticity of Demand (PED): Measures how much QD responds to price changes.
• Elastic demand: PED > 1; small price change causes large QD change.
• Inelastic demand: PED < 1; QD less responsive to price.
• Unitarity: PED = 1; proportional change in QD to price change.
• Perfectly inelastic: PED = 0; QD unchanged regardless of price.
• Perfectly elastic: PED approaches infinity; QD drops to zero if price changes.
• Income elasticity: Response of demand to income changes; positive for normal goods, negative for inferior.
• Market response: Demand/supply shifts based on price, income, advertising, and policies.

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