Notesale: Turn your study into money

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Economics

What is Economics?
● Economics is a social science
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● Economics is the study of choice under conditions of scarcity
● It is not just about memorization, but about a way of thinking, understanding, and doing
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● The study of how societies use scarce resources to produce valuable commodities and
distribute them among different people
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Our Resources
● Products are tangible objects that a company sells to customers for their use or
consumption
...
(Repairs, Insurance, Consultations, etc
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TWO MAJOR AREAS OF ECONOMICS
● MICROECONOMICS
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Studies the behavior of individual households, firms and governments as they interact in
specific markets
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The Four Types of Resources
● Labor - the time human beings spend producing goods and services
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● Entrepreneurship - the ability and willingness to combine other resources into a
productive enterprise
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What is a “market”?
● A market is a group of buyers and sellers with the potential to trade with each other
...
(e
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market for chicken, motorcycles, energydrinks, etc
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● LAW OF DEMAND: When the price rises, and everything else remains the same (ceteris
paribus), the quantity demanded will fall
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Equilibrium Price

Movements in the Curve vs
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SHIFTS in the Entire Demand and
Supply Curves

A Shift of the Demand Curve
● A change in the price of good causes a movement along the demand curve
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A Shift of the Supply Curve
● A change in the price of good causes a movement along the supply curve
● A change in any variable that affects supply – except for the good’s price – causes the
supply curve to shift
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● Law of demand indicates only direction of change in quantity demanded in response to
change in price but ELASTICITY OF DEMAND states how much or to what extent the
quantity demanded will change in response to change in price

What is Price Elasticity?
● “The sensitivity of quantity demanded to the price of the good itself”
...
”

“Elastic” vs
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● Conversely, when buyers and sellers are insensitive to a change in price, demand is said
to be inelastic
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● The longer the time period
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● The more narrowly defined the market
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● When good substitutes are available, demand will tend to be elastic
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How do you know when to call it ELASTIC OR INELASTIC?
● Relatively Inelastic Demand
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Quantity demanded does not respond strongly to price changes
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● Relatively Elastic Demand
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Quantity demanded responds strongly to changes in price
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Computing the Price Elasticity of Demand

Example: If the price of an ice cream cone increases from $2
...
20 and the amount you
buy falls from 10 to 8 cones then your elasticity of demand would be calculated as:

Midpoint Formula

Ranges of Elasticity
● Perfectly Inelastic
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Quantity demanded does not respond to price changes

● Perfectly Elastic
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Perfectly Elastic

● Unit Elastic
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Quantity demanded changes by the same percentage as the price
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Graphs Measure Elasticity

Elastic Demand

Inelastic Demand

Unit Elastic

Perfectly Elastic Demand

Perfectly Inelastic Demand

Sample Computation:
● Price of candy increases from PHP 4
...
00, and the amount of unit bought
decreases from 100 to 50
● Compute the price elasticity of demand
● Is the product elastic, inelastic, or unit elastic?

Total Revenue
● A firm’s profit is determined by taking the total revenue minus the total cost
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Price x Quantity = Total Revenue

● Relationship Between Price Elasticity of Demand and Revenue
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If demand is elastic:
● A given percentage rise in price brings a larger percentage decrease in the
quantity demanded
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If demand is inelastic:
● A given percentage rise in price brings a smaller percentage decrease in
the quantity demanded
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Price Discrimination
● Charging different prices for the same good or service in different markets
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Market Structures

What is a FIRM?
● A business usually producing only one type of product or service
...
(may also be called “market”)

What is a Market Structure?
● Those characteristics of the market that significantly affect the behavior and interaction
of buyers and sellers
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Pure (Perfect) Competition
2
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Monopolistic Competition
4

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