THE MARKET – DEMAND AND SUPPLY

The following sections are included:Price Mechanism and its FunctionsResource allocation in a free marketInteraction of Demand and SupplyConsumers and their demandProducers and their supplyEquilibrium price and equilibrium quantityChanges in demand and supply leading to changes in market equilibriumApplications of Demand and Supply: Responsiveness of Consumers and/or Producers (Elasticities)Price elasticity of demandCross elasticity of demand (h2 only)Income elasticity of demand (h2 only)Price elasticity of supplyApplication of Demand and Supply: Impact of Market Outcomes on Consumers and ProducersConsumer expenditure and producer revenueConsumer and producer surplusApplication of Demand and Supply: Rationale and Impact of Government Intervention on Consumers and ProducersTaxesSubsidyPrice control—Maximum price (Price Ceiling)Price control—Minimum price (Price Floor)Quantity controls—QuotasAnnex 2.1 Varying price elasticity of demand (PED) along a straight line demand curveAnnex 2.2 Varying PES along a straight line supply curveAnnex 2.3 Why a price inelastic (elastic) supply curve must cut the horizontal (vertical) axisAnnex 2.4 Specific and Ad Valorem TaxesAnnex 2.5 Extent of leftward shifts in the supply curve when an indirect tax is imposed