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Microeconomics III - Government intervention: Taxes, subsidies and price controls£2.50
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Title: Supply and demand
Description: Notes about demand and supply, the laws that define these two phenomena. Price and non-price determinants. The difference between a shift and movement in their linear graphs. Linear functions of supply and demand.
Description: Notes about demand and supply, the laws that define these two phenomena. Price and non-price determinants. The difference between a shift and movement in their linear graphs. Linear functions of supply and demand.
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Economics Chapter 1 and 2 tests
Introduc5on to demand
buyers and sellers interact together to carry out an economic transac5on
product markets—> where goods and services are bought and sold
factor markets—> where the four factors of produc5on are bought and sold
financial markets—> where interna5onal currencies are traded and where shares in companies
are bought and sold
• at the core of any market theory are the concepts of demand and supply
• demand is the quan5ty of a good or service that consumers are willing and able to purchase at a
given price in a given period of 5me
• if a consumer is both willing and able to purchase a given good or service, then it is known as
effec5ve demand
•
•
•
•
The law of demand
• as the price of a product falls, the quan5ty demanded of the product will usually increase, ceteris
paribus—> the assump5on that means all other things being equal or held constant
• the demand curve has a nega5ve slope
• price affects the quan5ty demanded—> it will cause a movement along the curve
• there are two factors for which demand increases:
-‐ income effect: when the price of a product falls, then people will have an increase in the real
income—> people will be likely to buy more a product
-‐ subs5tu5on effect: when the price of a product falls, then the product will be more aHrac5ve to
consumers compared to other goods that have not changed in price—> subs5tu5on
Non price determinants of demand
• other than price, there are other factors that affect demand
...
For inferior goods however, as income rises, the demand for a good will decrease and
consumers will subs5tute these with higher priced alterna5ves
...
e cheap wine
-‐ price of other products
1
...
i
...
complements—> these are products that are oLen purchased together such as DVD’s and DVD
players—> a change in the price of one good will lead to a change in demand for the other
good
3
...
If a producer is both willing and able to produce
a given good or service, then it is known as effec5ve supply
• as the price of a product rises, the quan5ty supplied of the product will usually increase
...
Expecta5ons and confidence may exert a strong effect on their produc5on
decisions
-‐ government interven5on—>
A
...
Indirect taxes are taxes on goods and services that are added to
the price of a product—> force price up and therefore decrease the supply
...
B
...
Curve is
shiLed downwards by the amount of the subsidy
Title: Supply and demand
Description: Notes about demand and supply, the laws that define these two phenomena. Price and non-price determinants. The difference between a shift and movement in their linear graphs. Linear functions of supply and demand.
Description: Notes about demand and supply, the laws that define these two phenomena. Price and non-price determinants. The difference between a shift and movement in their linear graphs. Linear functions of supply and demand.