Notesale: Turn your study into money

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An  economic  system=  how  the  decisions  of  what  goods  and  services  to  produce,  
how  to  produce  them  and  who  to  produce  them  for  are  made
...
A  Market  economic  system:  All  decisions  are  taken  by  private  sector  organisations  
and  individuals
...
 
2
...
 These  organizations  are  controlled  by  the  government  and  it  creates  
very  little  consumer  choice
...
 
3
...
 Decisions  are  both  took  by  organizations  and  individuals  or  the  
government
...
 
(street  lamps)  that  are  in  the  public  &  
economic  interest
...
 
merit  goods  &  essential  public  services  
(education)  who  are  mostly  free  or  at  a  
low  costs  for  people  who  can’t  afford  it  
...
 
sector  organizations  and  provide  welfare  
payments  to  people  out  of  work  or  on  low  
incomes
...
 
Harmful  goods  may  be  produced  if  it  is  
A  government  can  use  laws  to  make  the  
profitable  to  do  so
...
 
costs  and  benefits
...
 
Monopolies  
A  government  can  regulate  or  break  up  
monopolies  so  they  don’t  benefit  of  their  
power
...
 
o Effective  demand=  is  when  consumers  have  enough  money  to  buy  the  goods  and  
services  they  need  and  want
...
 
o  
o Quantity  demanded!  the  amount  of  good  and  services  consumers  are  willing  and  
able  to  buy  
o Individual  demand!  the  demand  of  one  single  consumer  

o Market  demand!  total  demand  for  the  
product  from  all  the  consumers  
o  
o  
o quantities  demanded  will  rise  as  their  prices  
fall  !  demand  
curves  will  be  
always  
downward  
sloping  when  
plotted  against  
price  (market  
demand  +  
individual  
demand)  
 
AN  EXTENSION  IN  DEMAND  will  be  caused  by  a  fall  
in  price,  with  no  change  in  any  other  factors  that  
could  affect  demand
...
   
o  
INCREASE  IN  DEMAND:!  consumers  now  demand  more  of  the  product  at  the  same  
price  of  before
...
 
o  
 
 
o DECREASE  IN  DEMAND:!  consumers  now  demand  less  of  the  product  at  the  same  
price  of  before
...
 
o  
o Factors  like  the  following  are  also  able  to  cause  a  change  in  demand  or  a  shift  in  
market  demand  curves:  
1
...
 income  falls=  
consumers  buy  less!  this  relationship  between  income  and  demand  depends  on  the  
type  of  product
...
NORMAL  GOOD=  it’s  a  good  which  when  incomes  rise  the  demand  for  the  
product  tends  to  rise
...
INFERIOR  GOOD=  it’s  a  good  which  when  incomes  rise  the  demand  for  the  
product  tends  to  fall
...
CHANGES  IN  TAXES  ON  INCOMES:!  DISPOSABLE  INCOME=  the  amount  of  money  
people  have  to  spend  after  taxes  on  their  income  has  been  deducted
...
THE  PRICES  AND  AVAILABILITY  OF  OTHER  GOODS  AND  SERVICES:!  
COMPLEMENTARY  GOODS=  two  goods  that  are  joint  together,  if  you  buy  a  car  you  
also  need  petrol
...
SUBSTITUTES=  a  product  which  can  be  replaced  by  another  good  or  service    
4
...
POPULATION  CHANGE    
6
...
The  weather  
b
...
Changes  in  law  
o
o

  
Supply:  refers  to  the  amount  of  goods  and  services  firms  or  producers  are  willing  to  
make  and  sell  at  different  prices
...
 
Market  supply:  the  amount  supplied  by  all  individual  producers  that  supply  that  single  
product
...
 
o AN  EXTENSION  OF  SUPPLY  will  be  caused  by  a  rise  in  price,  with  no  change  in  any  
other  factors  that  could  affect  supply
...
 
o  
o  
o  
o  
o INCREASE  IN  SUPPLY:!  producers  are  
now  more  willing  and  able  to  supply  more  of  a  
product  than  before  by  selling  it  at  the  same  
price
...
 
 
 
DECREASE  IN  
SUPPLY:!  
producers  are  now  less  willing  and  able  to  supply  more  
of  a  product  than  before  by  selling  it  at  the  same  price
...
     
 
 
 
 
 
Factors  like  the  following  are  also  able  to  cause  a  change  
in  supply  or  a  shift  in  market  supply  curves:  
1
...
 
2
...
 
3
...
 
4
...
 
5
...
 
     
 
 

MARKET  PRICE                  
 
Demand  &  supply  are  the  two  market  forces  that  determine  the  price  of  a  product
...
 demanded  and  q
...
 
 
An  increase  in  demand  for  a  product  will  
cause  the  demand  curve  to  shift  
outwards  !  as  a  result  the  market  price  
rises  from  P  to  P1!  quantity  supplied  
extends  to  meet  the  higher  demand    
 
An  increase  in  supply  will  cause  the  
supply  curve  to  shift  outwards!  as  a  
result  the  market  price  falls  from  P  to  P1!  
quantity  demanded  will  then  increase  for  
the  fall  in  price
...
 
 
ELASTICITY:  it  measures  the  
responsiveness  of  one  factor  to  a  change  in  
another
...
 
 
Demand  is  said  to  be  price  elastic  since  the  
percentage  rise  in  price  is  less  than  the  percentage  
change  in  quantity  demanded
...
 
 
fundamental  needs  are  inelastic  
PED  calculates  the  %  change  in  quantity  demanded  with  the  %  change  in  price  that  
caused  it
...
THE  NUMBER  OF  SUBSITUTES  
2
...
THE  PROPORTION  OF  INCOME  SPENT  ON  A  COMODITY:!  matches  are  inelastic  
because  since  the  prices  for  them  are  very  low  a  rise  in  price  won’t  affect  the  
quantity  demanded  instead  if  a  car  price  rises  this  is  elastic  because  the  amount  
someone  would  have  to  spend  would  be  much  greater
...
 
 
PES  (PRICE  ELASTICITY  OF  SUPPLY):!  is  a  
measure  of  the  
responsiveness  of  quantity  
supplied  to  a  change  in  
price
...
 This  
increase  in  demand  however  caused  only  a  small  rise  in  price  but  a  
big  rise  in  quantity  demanded
...
 This  increase  in  demand  however  caused  a  big  
rise  in  price  but  only  a  small  rise  in  quantity  demanded
...
 
!  Taxes  are  normally  done  on  inelastic  goods  and  services  since  a  big  rise  in  price  
causes  only  a  slight  change  in  demand
...
 
 
 

SUBSIDIES  are  payments  made  by  the  government  to  oofset  or  reduce  production  costs
...
 !  they  are  got  by  taxes
...
   
o +  
o PRIVATE  COSTS:  A  financial  cost,  such  as  the  purchase  of  a  new  computer,  incurred  
by  the  person  or  firm  responsible  for  the  action  or  decision  that  caused  it
...
   
o +  
o PRIVATE  BENEFITS:  A  financial  benefit,  such  as  sales  revenue,  enjoyed  by  the  
person  or  firm  responsible  for  the  action  or  decision  that  created  it
...
 That  is,  the  individual  or  firm  
imposes  an  external  cost  on  other  people  and  organizations  that  did  not  agree  to  the  
action  or  decision  that  created  it
...
 That  is,  it  provides  an  
external  benefit  for  other  people  and  organizations  that  were  not  involved  in  the  
action  or  decision  that  created  it
...
 
Taxation  can  be  introduced  to  increase  a  products  price  and  to  reduce  consumer’s  
demand  for  those  products  (ex

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