Notesale: Turn your study into money

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An industry: Made of up all the firms engaged in the same market activity

Industries have identifiable and distinct characteristics:
• Perfect competition
• Monopolistic competition
• Oligopoly
• Monopoly

Learn these types later! (pp23 - 26)


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Demand is defined as: the quantity of goods or services that consumers are willing and able to buy
at a certain price in a given time period
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The Law of Demand:

When a price for a product falls, the quantity demanded increases and vice versa
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income effect - As the price of goods fall, you become relatively richer
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(As they have more real income to spend,
consumers sometimes choose to buy more of the same product
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Substitution effect - As the price of a good decreases, consumers tend to buy it instead of
substitutes because the price is lower
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Law of diminishing marginal utility - This law states that as we consume additional units of
something, the utility we receive from each unit decreases
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Any change in PRICE causes a MOVEMENT along the curve
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(summation of goods for every price)


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Income --> when your salary rises, you stop or start consuming certain goods or services
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Taste and preferences
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Number of potential buyers
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Government policy
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Degree of necessity

Anything that affects your feeling or DEMAND of a product causes a SHIFT along the curve --> will
cause a change quantity demanded at each price


INCOME Change & DEMAND change

Normal goods: These are goods which demand rises are income rise and falls as income fall
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Eg
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They are considered as cheaper alternative to higher quality goods
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They usually
are products that people won't buy at the same time
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Exmaples: Cola and Pepsi, McDonalds and burger king, bus and train, chicken and beef

Complementary goods: These are goods that are purchased and used together or as the name
suggests used in
complement to each other
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Examples: Dvd players and dvds, camera and memory card, computers and printers

Veblen good: These are goods for which demand increases as income/price? rises
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Expectations of future prices and income

Expectation of future prices
• If price go up --> will buy more immediately --> shift to the right
• IF price go down --> will buy later ---> shift to the left

Expectation of future income
• If income increases --> will buy more products
• If income decreases --> will buy less products --> lack of consumer confidence

Number of potential buyers

Increase in number of potential buyers --> increase in demand (and vice versa)

Demographic change

Demand can be affected by age structure, income distribution or other demographic changes
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g
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g
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4 Linear Demand Functions

Demand functions demonstrate negative relationship between price and quantity and are
graphically represented by downward sloping lines
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5 Supply


Supply is the quantity of goods that producers are willing and able to produce and sell at a given
price over a certain time period, ceteris paribus

• Supply curve shows the relationship between change in price and the quantity suppliers
produce

The law of supply

As price increases, the quantity produced also increases and vice versa, ceteris paribus
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So if the price of a product rises, firms to produce to earn extra profit
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Cost of production (labor cost, tax, electricity, factors of production)
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Government intervention
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Supply shocks
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Opportunity cost
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(shift resources to the production of
something that is more profitable)
• Rise in price/decrease in availability of fops --> decrease in profit --> less supplied

Productivity

Productivity: the amount of output per unit of input (closely related to production cost)

Use fewer resources --> spend less

Can be enhanced in different ways
• Managerial insight --> better methods of production
• Better incentives for workers
• Changing production schedules
• Adding new and specialized jobs to increase efficiency
• Technological improvements (robotic systems, )
• Data management --> reduce accounting costs and find new ways of marketing products

Government intervention


Government intervention: is when government makes decisions regarding the essential questions of
economics: what to produce, how to produce, and who should receive the benefits of production
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etc
• Expected to cause extra costs

Taxes and subsidies

Indirect tax --> increase in the cost of production
Indirect tax: taxes on goods or services that are collected at the point of sale and then
transferred by the seller to the government

Tax increase --> smaller profit --> production decreases (lifts the supply curve by theamount of the
tex)

Subsidies: is when the govt pays a producer to make more of the good
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Natural disasters that affects crops, homes and infrastructure
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7 Linear supply functions

A supply function can demonstrate the positive relationship between price and quantity

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