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Supply and Demand 1. E= equilibrium price: this is the price that buyers agree to buy at and sellers agree to sell at. 2. When quantity supplied is constant and quantity demanded increases (shift to the right) then a shortage for quantity supplied is created (shaded area) 3. When quantity supplied is constant and quantity demanded decreases (shift to the left) then a surplus for quantity supplied is created (shaded area) 4. When quantity demanded is constant and quantity supplied decreases (shift to the left) then a shortage for quantity demanded is created (shaded area) 5. When quantity demanded is constant and quantity supplied increases (shift to the right) then a surplus for quantity demanded is created (shaded area) Economics -Principle: unlimited wants, limited resources -Allocate resources in the best possible way (function of economics) to satisfy wants and needs -use resources to get the most out of things (economize) -Economic Activities: -3 basic activities -Production -Marketing -Consumption (they are dependant on each other) Production: set of activities or processes in making good and services available. -Tangible (can touch) => goods -Intangible (can’t touch) => services *Once produced => market Marketing: moving products from where they are produced to a point where consumers can access products Consumption: utilize => utility -use of the service or good Production: Factors -land -capital (fixed =>durable, circulating) -labour -entrepreneurship (management) -fixed (durable): -long lasting =>capital (land, machinery, equipment). -Not used everyday -circulating: used up on a day to day basis =>cash, money, paper, ink, etc. -ex: TDC: fuel, ink, paper Farmer: water, seeds, fertilizer Labour: aspect needed to put land, capital, and management together -3 questions => Production -What to produce -How to produce -How much to produce (all three done through market research) Demand -Law of demand: Consumers are prepared to purchase a good or service at a given price at a given period of time. -as price rises, demand falls -as price falls, demand increases -Demand schedule: shows the quantity of the commodity or service demanded and the price associated with the commodity or service -Factors to cause an increase in demand are: -taste and fashion -quality -quantity -advertisement -brand loyalty -Factors that will cause a shift in demand -complimentary goods -substitute goods -quality -choice -tradition -culture -income -brand loyalty -taste -population -When you speak about demand, you are referring to the consumers/buyers Supply -the quantity of a commodity/service that producers want to produce at a given price. -1st Law of supply: as price decreases, suppliers supply less. -When you speak about supply, you are referring to the producer/seller. Ways the government controls price: -price ceiling: highest level that price can be set -price floor: lowest level that price can be set -price ceiling: protects the customer. The business cannot set the price too high. -price floor: protects the producer because a low price may give the consumer negative thoughts about the product Market Structures -Perfect Competition: a large number of small firms (businesses), each of which sells an identical or homogeneous product to a large number of buyers. -both consumers and producers have perfect or accurate knowledge about the market -no buyer in the market gets or expects to get preferential treatment -firms (businesses) may enter and leave this market as they so desire because there are no barriers to entry or exit. -there is perfect mobility of the factors of production meaning that workers, capital, managers, and materials can move to any part of the industry to any firm at any point in time. There is complete freedom of movement -each firm within the industry is a price taker. This means that it accepts the ruling market price within the industry. Imperfect Competition -Monopoly: single supplier of a product -there are significant barriers to entry and exit. -Monopolists are profit makers and set the price of their product -Monopolists can either set the price of the product or increase the volume of the production of it but not both -Monopolists can earn above normal or supernormal profits in the long run A monopoly can be harmful (see page. 244) Monopolistic Competition: a market structure with a large number of firms producing differentiated products. This means that the products are basically the same but there are slight differences for example branding, colour additives, fragrance changes and so on. -each firm is a price maker -there are no barriers to entry and exit -there is spare capacity in the industry meaning that there is room for more firms to enter the industry -the firms are said to be profit maximisers and like the others produce where marginal costs is equal to marginal revenue -the fact that there are no barriers to entry and exit, firms in the long run may enjoy supernormal profits -the firms may engage in non-price competition and likely price competition among themselves Oligopoly: dominated by a few firms (3-8) so that there is a high concentration of sales. (see pg 247 for features) Duopoly: refers to two firms dominating a market. (see pg 245 for features Cartel: a group of firms or countries coming together to decide on certain strategies, usually to determine prices of a products. Example: OPEC. (see pg. 248 for features)