Download ECONOMICS – I – [1.2]

ECONOMICS – I – [1.2]
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Defining terms – define once per article but refer back
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Be clearly specific – don’t assume I know etc
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Simplified models – PPC and PPF
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Q p72 TBC
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The MARKET – buyers and sellers MUST be both
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Demand and supply of goods and services – graphs
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Demand is amount ACTUALLY bought (not wish)
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DEMAND = the amount of a good or service that is bought at a
particular price over a particular time period
ECONOMICS – I – [1.2]
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Demand function - INVERSE
Relationship – many relationships in econ
QDx = f (Px)
Substitutes and complements QDx = f (Px; Ps; Pc)
, income & ability to buy, QDx = f (Px; Ps; Pc; Y)
Y = Income (I = Investment)
Positive correlation = normal good (v “inferior” [inverse] goods)
Goods can be one or other depending on attitudes – bikes
Ceteris paribus = simplified model, change one variable at a time
Plot it
Demand function = whole curve, actual demand = point on line
Many factors affecting demand
(veblen = vv, luxury goods, giffen = vv, inferior goods)
ΔY    ΔD
ECONOMICS – I – [1.5]
• THEORY OF DEMAND
• DEMAND CAN BE DEFINED AS THE QUANTITY OF
GOODS AND SERVICES CONSUMERS ARE WILLING
AND ABLE TO PURCHASE AT VARIOUS PRICES
OVER A PERIOD OF TIME.
• THE LAW OF DEMAND STATES THAT THERE IS AN
INVERSE RELATIONSHIP BETWEEN DEMAND AND
QUANTITY DEMANDED. THUS IF PRICE FALLS
QUANTITY DEMANDED RISES AND VICE VERSA.
THEREFORE, THE LAW OF DEMAND IS OFTEN
REFERRED TO AS THE LAW OF DOWNWARDSLOPING DEMAND. THIS SHIFT IN DEMAND IS
ILLUSTRATED BY MOVEMENT ALONG AS EXISTING
DEMAND CURVE.
ECONOMICS – I – A [1-10]
• PRICE IS NOT THE ONLY FACTOR THAT
AFFECTS DEMAND. AS PRICE CHANGES,
QUANTITY DEMANDED CHANGES.
DEMAND DEPENDS ON A NUMBER OF
DIFFERENT FACTORS AND A CHANGE IN
ANY ONE OF THESE CAN CAUSE THE
DEMAND CURVE TO SHIFT LEFT OR RIGHT
• PRICE CHANGE – ALONG CURVE
• OTHER CHANGE – CURVE SHIFTS
ECONOMICS – I – [1.10]
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FIVE MAJOR NON-PRICE FACTORS AFFECTING DEMAND
1. SIZE OF THE MARKET
AN INCREASE IN THE SIZE OF THE MARKET FOR A PRODUCT
BRINGS AN INCREASE IN DEMAND AND VICE VERSA
2. INCOME
DEMAND FOR MOST GOODS WILL RISE IF THERE IS A GENERAL
INCREASE IN INCOME
3. PRICE AND AVAILABILITY OF RELATED GOODS
THIS REFERS TO GOODS THAT CAN BE INTERCHANGED FOR ONE
ANOTHER
4. TASTES
CHANGING MARKET PLACE CAN ALSO LEAD TO A CHANGE IN THE
QUANTITY DEMANDED
5. EXPECTATIONS
EXPECTATIONS OF PRICE INCREASES WILL SHIFT THE DEMAND
CURVE TO THE RIGHT, AND EXPECTATIONS OF PRICE DECREASES
WILL SHIFT THE DEMAND CURVE TO THE LEFT
Ceilings & Floors
Government Intervention (interference?)
Subsidies & Quotas
Quotas:
Inflicted on firms/industries/imports
Restricted supply – prices up
Subsidies & Quotas
Subsidies:
Given to firms / exporters to lower costs
Increased supply = lower prices = more sold (NB elasticity)