MindMap Gallery Basic Economics VIP Chapter 2 Basic Market Demand, Supply and Equilibrium Price
Demand elasticity, supply elasticity, and equilibrium price provide an important theoretical framework and analytical tool for us to deeply understand the market mechanism, the price formation process, and the market supply and demand relationship.
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This is a mind map about plant asexual reproduction, and its main contents include: concept, spore reproduction, vegetative reproduction, tissue culture, and buds. The summary is comprehensive and meticulous, suitable as review materials.
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Economics VIP: Basic market demand, supply and equilibrium price
Test point 1: Market demand
Meaning: The quantity of a certain product or service that consumers are willing and able to purchase under certain conditions at a certain time and at a certain price. Market demand is the sum of consumer demand.
Components: (1) desire to purchase; (2) ability to pay
Determining factors (3 matches, 3 prices, 1 others)
Prices of consumer goods: most important, reverse
Consumer preferences: govern his consumption choices between substitutes with the same or similar use value
Consumer personal income: moving in the same direction
Prices of substitutes: change in the same direction---rice and steamed buns
Prices of complements: reverse changes---cars and gasoline
Consumer expectations: Expecting price increases, stimulating early purchases; anticipating price decreases, delaying purchases
Other factors (product variety, quality, advertising, geographical location, season, national policies)
Demand function: represents the relationship between the demand for a commodity and various factors that affect the demand
Law of demand: The relationship changes in the opposite direction with price changes
demand curve
Changes in demand: line does not move, moves slightly
Change in demand: demand curve shift, linear movement
The market demand curve is the horizontal sum of all individual consumer demand curves
Test point 2: Market supply
Meaning: At a certain time and at a certain price level, producers are willing and possible to provide the quantity of a certain commodity or service to the market; market supply is the sum of the supplies of all producers
Influencing factors 3 production 2 price 1 other
Product price: everything else remains unchanged, the price and supply of the product itself change positively
Production cost: other things remain unchanged, the product's own cost and supply change inversely
Production technology: Technology determines costs to a certain extent, thereby affecting supply
Expectations: Production This and sellers’ expectations affect supply
Related product prices
Other factors: production factor prices and national policies, etc.
Supply function: assuming other factors remain unchanged, only considering the relationship between the supply quantity of a certain commodity and the commodity price
Law of supply: Price and supply change in the same direction. Generally speaking, the higher the market price, the greater the supply.
supply curve
Changes in supply quantity: Everything else remains unchanged - only price is considered, the line does not move, and the line moves
Supply changes: factors other than price, such as cost: supply curve displacement, linear movement
Test point 3: Equilibrium price
Formation: The price level reached when the supply force and the demand force cancel each other out. At this time, the supply and demand quantity is the equilibrium quantity. The equilibrium is accidental, temporary, and relative, and the equilibrium price is changeable.
price ceiling analysis
Meaning: Government intervention to set a specific price for a certain product
Goal protects consumer interests or reduces certain producer costs
Impact: Lower than the equilibrium price, it will stimulate consumption, restrict production, reduce supply, increase demand, and result in market shortages
Consequences: Serious queuing, black market transactions, high black market prices, backdoors, disguised price increases by producers, shoddy products, and shortfalls.
Measures: Administrative measures and distribution measures (rationing)
Protection price analysis: minimum price, support price
Meaning: The government sets a specific price for a certain product, and transactions can only take place above it; it is a government intervention in the market.
Purpose: To protect the interests of producers or support the development of an industry. For example: my country and some countries or regions in the world adopt price protection policies to support agricultural production and stabilize farmers' income levels.
Impact: Higher than the equilibrium price, it will stimulate production, restrict consumption, and lead to market excess.
Consequences: If there is no government acquisition, there will be disguised price cuts or black market transactions.
Measures: Establish a government procurement and reserve system (price protection should only be implemented on a few agricultural products such as grain)
Test point 4: Flexibility
price elasticity of demand (elasticity of demand)
Definition: Rate of change of demand/rate of change of price (rate of change of dependent variable/rate of change of independent variable = all elasticities)
Calculation formula
Point elasticity: suitable for situations where price and demand change slightly - the ratio of relative changes
Arc elasticity: When the change is relatively large: Ratio of relative changes
basic type
Greater than 1: demand is elastic
Less than 1: demand is inelastic
Equal to 1: single elasticity of demand
Influencing factors
Number and similarity of substitutes: how narrow and how large
The Importance of Commodities: Essential Small, Not Large
How much the product is used for: Many - Large
Length of time: long-large
Relationship to total sales revenue
Less than 1 in the same direction: price reduction - revenue reduction
Greater than 1, reverse: price reduction - income increase
It doesn’t matter if it is equal to 1: decrease or increase - income remains unchanged
Enterprises should adopt small profits but quick turnover for goods with elastic demand.
cross elasticity of demand
Definition: The ratio of the relative change in the price of one commodity to the resulting relative change in demand for another commodity is used to determine whether the two commodities are substitutes or complements.
type
Greater than 0: substitutes, changing in the same direction
Less than 0: complementary goods, opposite changes
Equal to 0: irrelevant
income elasticity of demand
Definition: The ratio of the change in demand to the change in consumer income that caused this change, measuring the response of changes in demand to changes in consumer income
type
High-end products
Greater than 1: high income elasticity
Equal to 1: Income and demand change in the same proportion
necessity
Between 0-1: low income elasticity
Equal to 0, income changes and demand remains unchanged.
low-grade goods
Less than 0: reverse change
"High-end products and necessities" are collectively referred to as "normal products"
price elasticity of supply
Definition: Relative changes in price conceal relative changes in supply
type
Equal to positive infinity: supply is completely elastic, rarely seen in real markets
Greater than 1: supply is elastic
Equal to 1: unit elasticity of supply
Between 0 and 1: supply is inelastic
Equal to 0: supply is completely inelastic, rarely seen in the real market
Influencing factors
Time: the primary factor that determines supply elasticity, is positively correlated
Production cycle and natural conditions: For agricultural products, the supply elasticity in the short term is almost 0, and the impact of price on supply often takes a production cycle to manifest.
The degree of substitutability and similarity of inputs: The greater the substitutability and similarity of inputs, the greater the elasticity of supply. Here we need to compare the factors that affect the price elasticity of demand: the number and degree of similarity of substitutes