economics is the social science that deals with production, distribution and consumption
focusses on the behaviour of individuals, such as consumers, producers and markets
deals with a broader aspect of the economy, such as national income, unemployment, inflation and economical growth
there arent enought resources to full fill the needs and wants that people have
food, shelter, water, clothing, money
deseirs that go beyong the basic necessities for survival.
needs and wants are unlimited due to the nature of human desiers:
human nature
social comparisons
advertising and consumerism
cultural and social influences
status and identity
resources that have a limited supply, meaning there is a definite quanitity
non renewable energy: fossil fuels and natural gases
minerals and metals like gold, silver are finite
scarcity
What to produce, How to produce and who to produce for
is the value of the next best thing that is forgone when a choice is made
taxation and spending
budget allocation
is the ability and willingness of a consumer to buy a product at a given price
when things are expensive less people will buy it, when things are cheapter more people will buy it
only occurs due to a price change
advertising, income of people, taste and fashions, price of substitues, price of complements, demographic changes
are products that are typically consumed together because using one enhances the other
are goods that can be used in place of one another to satisfy a similiar need and want
is a graphical representation of the maximum combination of 2 goods that can be produced with a given level of resources
items that are used to produce other goods and survices
items that are produced for the direct consumsion of consumers
manufacturing machinery, construction equipment, computers and servers used for business operations
efficiency, scarcity, oppurtunity cost
they priotitize production of capital goods to build infustructure. This may lead to a short term sacrifise in living standards.
is when a country production of goods and services is increasing over time
technological advancements, education and skills, new natural resources, improvement in efficiency,
distruptions in the supply chain, major health crises, natural calamities.
is the ability and willingness of a firm to sell a good or service at a given price.
as the price of a product increases the quanitity supply also increases. If the price of a product decreases the quantity supplied also decreases.
there will be a movement only due to price
refers to when the quantity of a particular good or resource available in a market is limited and cannot be easily fixed or changed. eg - tickets at a football game
change in producction cost, technological advancments , subsodies and incentives, natural desasters and supply shocks, goverment regulations and taxes.
is the total amount of money generated by a firm through the sale of goods and services
total revenue = equillibrium price and equilibrium quantity.
refers to a state of balance or stability in a market where the quantity of a good or service demanded by consumers equals the quantity supplied by producers.
the price elasticity of demand is the responsiveness of quanitity demanded to a given change in price.
price elasticity of demand = percentage change in quantity demanded/percentage change in price.
implies that consumers are sensitive to price changes. A small increase in price results in a proportionately larger decrease in quantity demanded.
refers to a situation where the quantity demanded of a good or service is relatively insensitive to changes in price. When the price of a product chnages, the percentage change in the quantity demanded is proportionately smaller.
basic necessities: food, water, electricty
medicines
ped range : 0<PED<1
a theoretical concept used to descrive a situation where the quanitity demanded for a good or service becomes infinite at a specific price.
ped = infinity
occurs when the percentage change in quantity demanded is exaclty equal to the percentage change in price
ped =1
a situation where the quantity demanded for a good or service remains constant regardless of changes in price.
ped = 0
1. Availability of substitues
many = consumers are more responsive, elastic demand
less=petrol, inelastic demand
2. Necessity vs luxury
necessities = inelasticc demand
luxury = elastic demand
3. Time horizon
4. Brand Loyalty = less elastic
5. Habitual goods
6. Proportion of income spent
elastic demand(PED>1)
if the profduct has elasticc ddemand and the price increase TR will fall. Instead the firm must lower selling prices in order to increase TR
inelastic demand(PED<1)
if the product has inelastic demand and the price increase TR will rise. The firm must INCREASE selling prices in order to increase TR
measures the responsivness of quantity supply given the change in price.
PES=percentage change in quantity supply/percentage change n price.
when the quantity supplied chabfes by a larger proportion than the percentage change in price.
commonly found in products that are manufactured in factories using machines,.
1<PES<infinity
when the percentage change in quantity supplied is less thatn the percentage change in price.
commonly found in the market fot agricultural produce.
0<PES<1
there is no change in price, however quantity suppled could change, This is unrealisiic as prices cannot remain fixed.
PES=infinity
the quantity supplied does not change with pricce changes. The firm is unabble to supply any more units as it is fixed in supply
1. Access to raw materials-
easy access = elastic
difficuly= inelastic
2. availiability of stocks
sufficient = elastic
insufficient = inelastic
3. spare capacity
have=elastic
dont=inelastic
4.time to produce
long time = inelastic
short time = elastic
measures the responsivness of quantity demanded to a change in consumer income.
YED=percentage change in quantity demanded/percentage change in income
positive value - as the income increases the demand for the good also increases, such as high end fashion items, fuel, mobile phones
when income rises or reduces consumers are not going to alter their consumption significaanly. YED value is between 0 and 1
the income elasticity of demand is elastic for such goods and services. YED value is >1
negative value - if the income elasticity is negative the good is an inferior good. Examples include generic or store brand products, low quality good and certain types of public transport.
payments by the goverments to suppliers to reduce their cost
occurs when tge quantity demanded exceeds the quantity supplied in current price
occurs when the quantity supplied exceeds the quantity demanded at the current price
it will always be negative due to the law of demand
final-initial/initial x 100
goods that are a part of a routine purchase, like coffee