economics
what is economics?
economics is the social science that deals with production, distribution and consumption
microeconomics
focusses on the behaviour of individuals, such as consumers, producers and markets
macroeconomics
deals with a broader aspect of the economy, such as national income, unemployment, inflation and economical growth
scarcity
there arent enought resources to full fill the needs and wants that people have
examples of needs and wants
food, shelter, water, clothing, money
wants
deseirs that go beyong the basic necessities for survival.
why are needs and wants unlimited?
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
finite resources
resources that have a limited supply, meaning there is a definite quanitity
examples of finite resources
non renewable energy: fossil fuels and natural gases
minerals and metals like gold, silver are finite
what is the basic economical problem
scarcity
how is the basic human problem summarized
What to produce, How to produce and who to produce for
oppurtunity cost
is the value of the next best thing that is forgone when a choice is made
oppurtunity cost in govermental context
taxation and spending
budget allocation
demand
is the ability and willingness of a consumer to buy a product at a given price
law of demand
when things are expensive less people will buy it, when things are cheapter more people will buy it
why would there be a movement along the demand curve
only occurs due to a price change
factors that shift the demand curve
advertising, income of people, taste and fashions, price of substitues, price of complements, demographic changes
complementery goods
are products that are typically consumed together because using one enhances the other
substitutes (goods)
are goods that can be used in place of one another to satisfy a similiar need and want
ppc
is a graphical representation of the maximum combination of 2 goods that can be produced with a given level of resources
capital goods
items that are used to produce other goods and survices
consumer goods
items that are produced for the direct consumsion of consumers
examples of capital goodds
manufacturing machinery, construction equipment, computers and servers used for business operations
concepts show on a ppc
efficiency, scarcity, oppurtunity cost
what do they focus on in developing economies
they priotitize production of capital goods to build infustructure. This may lead to a short term sacrifise in living standards.
economical growth
is when a country production of goods and services is increasing over time
why do economies grow?
technological advancements, education and skills, new natural resources, improvement in efficiency,
what causes negative economical growth
distruptions in the supply chain, major health crises, natural calamities.
supply
is the ability and willingness of a firm to sell a good or service at a given price.
law of supply
as the price of a product increases the quanitity supply also increases. If the price of a product decreases the quantity supplied also decreases.
movement of the supply curve
there will be a movement only due to price
fixed supply
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
factors that shift the supply curve
change in producction cost, technological advancments , subsodies and incentives, natural desasters and supply shocks, goverment regulations and taxes.
revenue
is the total amount of money generated by a firm through the sale of goods and services
total revenue = equillibrium price and equilibrium quantity.
equillibrium
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.
ped
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.
elastic demand
implies that consumers are sensitive to price changes. A small increase in price results in a proportionately larger decrease in quantity demanded.
inelastic demand
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.
examples of inelasticc goods
basic necessities: food, water, electricty
medicines
ped range : 0<PED<1
perfectly elastic demand
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
unitary elastic demand
occurs when the percentage change in quantity demanded is exaclty equal to the percentage change in price
ped =1
perfectly inelastic demand
a situation where the quantity demanded for a good or service remains constant regardless of changes in price.
ped = 0
factors influencing ped
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
ped and relashionships to total revenue
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
PES
measures the responsivness of quantity supply given the change in price.
PES=percentage change in quantity supply/percentage change n price.
elastic supply
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
Inelastic supply
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
perfectly elastic supply
there is no change in price, however quantity suppled could change, This is unrealisiic as prices cannot remain fixed.
PES=infinity
perfectly inelasticc supply
the quantity supplied does not change with pricce changes. The firm is unabble to supply any more units as it is fixed in supply
factors influencing pes
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
YED
measures the responsivness of quantity demanded to a change in consumer income.
YED=percentage change in quantity demanded/percentage change in income
NORmal goods
positive value - as the income increases the demand for the good also increases, such as high end fashion items, fuel, mobile phones
Necessities
when income rises or reduces consumers are not going to alter their consumption significaanly. YED value is between 0 and 1
luxury goods
the income elasticity of demand is elastic for such goods and services. YED value is >1
inferior goods
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.
subsidies
payments by the goverments to suppliers to reduce their cost
excess demand
occurs when tge quantity demanded exceeds the quantity supplied in current price
excess supply
occurs when the quantity supplied exceeds the quantity demanded at the current price
why is the ped value always negative
it will always be negative due to the law of demand
how to calculate change in percentage
final-initial/initial x 100
habitual goods
goods that are a part of a routine purchase, like coffee