Microeconomics 101: Supply, Demand & Elasticity

Market Equilibrium

The price of a good is determined where the Supply Curve meets the Demand Curve.

Definitions:

• Law of Demand: As price goes up, quantity demanded goes down (Inverse relationship).
• Law of Supply: As price goes up, quantity supplied goes up (Direct relationship).

Exam Question: What happens to the equilibrium price if consumer income rises? (Hint: Demand curve shifts right, Price increases).

Understanding Elasticity

PED measures how sensitive consumers are to a price change. Formula: % Change in QD / % Change in Price.

• Elastic (>1): Consumers are sensitive (e.g., Luxury cars). A small price hike drops sales significantly.
• Inelastic (<1): Consumers don't care much (e.g., Insulin, Petrol). You buy it regardless of price.

Use our AI Quiz Generator to test your math on calculating PED coefficients.