HCI 2024 H2 Econs Summary Tables

HWA CHONG INSTITUTION Year Two H2 Economics 2024 Summary Tables: Demand, Supply and Elasticity Concepts © Hwa Chong Institution Economics Unit. All Rights Reserved. Students' Copy A.1 Appendix A1: Summary Table for Demand, Supply and Elasticity Concepts A List of Acronyms that Help you to Remember Key Determinants of Demand, Supply, Elasticities of Demand and Supply DEMAND Refers to the quantities of a good or service that consumers are willing and able to buy at various prices over a given period of time, ceteris paribus. SUPPLY Refers to the quantities of a good or service that producers are willing and able to offer for sale at various prices over a given period of time, ceteris paribus. PRICE ELASTICITY OF DEMAND INCOME ELASTICIY OF DEMAND PRICE ELASTICITY OF SUPPLY P-TIDE CPPSE SNIT NL SNIT Price of related goods (substitutes and complements) Cost of production (costs of inputs, technology, productivity, taxes & subsidies) Substitutes Nature of goods Spare capacity Taste & preference (influenced by fashion/fad, government policies, advertising and seasons) Changes in the Prices of Related Goods (competitive supply, joint supply) Necessities Level of income Nature of production (length of production period and ease of factor substitution) Income (purchasing power affected by economic performance such as GDP growth rates) Changes in the Number of Producers Proportion of Income spent Inventories /stocks Demographics (size, age and sex composition) Supply Shocks (Nature – weather & natural disasters; Man- made – wars, riots; terrorism) Time period Time period Expectations (expectation of future income/prices and speculation) Expectations (Future outlook in terms of profitability)

HWA CHONG INSTITUTION Year Two H2 Economics 2024 Summary Tables: Demand, Supply and Elasticity Concepts © Hwa Chong Institution Economics Unit. All Rights Reserved. Students' Copy A.2 Appendix A2: Summary Table for Demand and Supply Elasticity Concepts ELASTICITIES OF DEMAND PRICE ELASTICITY OF SUPPLY Price elasticity of Demand Income elasticity of Demand Cross elasticity of Demand Price elasticity of Supply Definition PED measures the responsiveness of quantity demanded of a good to changes in its own price , ceteris paribus. YED measures the responsiveness of demand of a good to changes in income, ceteris paribus. CED measures the responsiveness of demand of a good X to changes in price of good Y , ceteris paribus. PES measures the responsiveness of quantity supplied of a good to changes in its own price , ceteris paribus. Note: Do not forget to include the ‘ceteris paribus’ condition in the definition. Formula % change in Qd % change in its own price % change in Qd % change in income % change in QdX % change in PY % change in Qs % change in its own price Sign Always negative due to the law of demand - price and Qd are inversely related – this happens when supply changes (supply curve shifts) As a result, we usually focus on analysing the magnitude. • Can be positive or negative depending on the kind of goods • YED>0: normal (includes both necessities & luxury goods) - demand moves in the same direction of income • YED<0: inferior - demand moves in th e opposite direction of income • Can be positive, negative or 0 depending on the relationship between the two goods • CED>0: substitutes - DDx↑/↓, when Py↑/↓ • CED<0: complements – DDx↓/↑ when Py ↑/↓) • CED=0: DDx unchanged when Py changes Always positive due to the law of supply - price and Qs are directly related – this happens when demand changes (demand curve shifts) Magnitude/ Determinants (IMPACT ON PRICE & OUTPUT) Note: Total revenue or expenditure by consumers = P x Q. PRICE ELASTIC DEMAND (|PED| > 1) Qd changes more than proportionately than price. E.g. Soft drinks as there are many substitutes which can satisfy similar wants (beverages such as tea, coffee and water) available. Those that form a large proportion of income such as major items like cars and houses will experience a substantial fall when there is a rise in price as consumers will have to sacrifice other needs if they choose to spend on such items. NORMAL GOOD (YED > 0) Necessities (0 <YED<1) + Luxury goods (YED > 1) SUBSTITUTES (CED > 0) For example, McDonald and Burger King, a decrease in the price of McDonald will lead to a fall in the demand for Burger King and vice-versa. PRICE ELASTIC SUPPLY (PES > 1) Qs changes more than proportionately than price. E.g. For low -end manufacturing goods, there are many suppliers in the market, stocks are easily accumulated and the factories are still not operating in full capacity , therefore when price increases, suppliers can respond quickly. When demand increases from D 0 to D1, quantity increases from Q 0 to Q 1 by more than proportionate ly as compare to price. As both price and quantity exchanged increase, t otal revenue/expenditure will rise. Necessities (0 <YED<1) Demand increases less than proportionately than increase in income. The more basic a good is, the lower the YED - bread and potatoes. Also the rate at which the desire of a good is satisfied as consumption increases for example food. One need not consume too much food before feeling satisfied thus as income increases there is a less than proportionate increase in consumption of food. However, this will also depend of the level of income of the consumers. A n inferior or a necessity good to the rich might be a luxury good to the lower income household. Note: Level of income is different from proportion of income. The former is a determinant of YED while the latter is for PED. Price Figure 1a S0 S1 E0 P0 E1 P1 D0 0 Q0 Q1 Quantity Price Figure 1d P1 E1 S0 P0 E0 D1 D0 0 Q0 Q1 Quantity

HWA CHONG INSTITUTION Year Two H2 Economics 2024 Summary Tables: Demand, Supply and Elasticity Concepts © Hwa Chong Institution Economics Unit. All Rights Reserved. Students' Copy A.3 ELASTICITIES OF DEMAND PRICE ELASTICITY OF SUPPLY Price elasticity of Demand Income elasticity of Demand Cross elasticity of Demand Price elasticity of Supply E.g. As technology improves and lowers the cost of production of soft drinks, the supply increases from S0 to S1, quantity increases from Q0 to Q1 by more than proportionately as compare to price. Total revenue/expenditure will rise. Similarly, when supply falls, there is greater impact on quantity as compared to price. Note: A movement along the demand curve is caused by a shift in supply. Similarly, when demand falls, there is greater impact on quantity as compared to price. Note: A movement along the demand curve is caused by a shift in supply. For PES > 1, supply curves cuts at the Y axis. PRICE INELASTIC DEMAND (|PED| < 1) Qd changes less than proportionate ly