Economics Notes

Password: f3j4EF

In a free market, the price of a good or services will be determined by the

effective demand of customers to buy goods and services and the willingness
and ability of firms to provide goods and services.
The market for a good or service will be in equilibrium when consumers demand
for that product is EXACTLY equal to the amount producers are willing and
able to supply.

At equilibrium the market price for the product will be stable.
Macroeconomics
Economics involve the study of how humans work together to convert limited
resources into goods and services to satisfy many of their unlimited wants
as they can. Economics are divided into macroeconomics and microeconomics.
Microeconomics studies the economic decisions and actions of individuals,

consumers, producers, and households and how these economic decision makers
interact. Microeconomics will study, how individual firms organize production
and why, what determines the wages paid to different groups of workers,
what determines the prices of goods and services.
Macroeconomics
Macroeconomics divides up the economy into many smaller parts or sectors.

Macroeconomics considers economic issues and actions that affect the whole
economy, such as what determines the total output of all firms in an economy,
what is the total national income of the economy, and what causes it to change
over time, what impacts can changes in taxes and government spending have
on an economy, what are the reasons for differences in living standards
between countries.
Key resources allocation decision

Scarcity of resources of human wants is the basic economic problem. Every
economy must therefore choose what goods and services to produce with
their limited resources.
Deciding how to best allocate limited resources to different productive

us becomes the problem of resource allocation. This basic economic problem
therefore creator creates three questions every economy has to solve:
what goods and services to produce, how to produce them and whom to produce
to.
What to produce
This involves choosing which wants to satisfy every society, no matter
the size of the economy.
Three types of economic systems

Marketing economic system: the action of individual consumers, firms and
households in the private sector determine the allocation of resources.
There is no role for a government or a public sector, hence no taxes
on public spending.
Planned economic system: almost all decisions about how resources are used,
what is produced, and how goods and services are priced and allocated, are
taken by organizations, controlled and accountable to the government.
Individual consumers, firms and households have little control over the
resources.
Mixed economic system: ownership of scarce resources and decisions about

how to use them are split between the private sector and public
sector consisting of government authorities and organizations.
A mixed economy system combines the market system with a system of

government planning and control over some resources. In some countries
with mixed economies, the public sector is large and controls significant
resources.
Demand
Demand is the want or willingness of consumers to buy goods
and services. To be an effective demand, consumers must
have enough money to buy the goods
Individual demand
VS Market demand
It is written on the notebook.
The market demand for any given good or service shows

the relationship between the total quantity demanded
by consumers each period and the price of the product.
Consumers will move along their individual demand curves
for a product as the price of that product changes. Here
the quantity they demand each period rises or extends
as the price falls and their demand contracts as the
price rises. In general, demand curve will normally
be downward sloping when plotted against price.
Shifts in demand curve.
An increase in demand: consumers now demand more a

product at every price than they did before. The market
demand curve will shift out to the right.
A fall in demand: consumers now demand less of a product

at every price than they did before. The market demand
curve moves in towards the left.
Supply
Supply refers to the amount of a good or service that firms or producers are
willing to make and sell at different prices.
The market supply of a product will be the sum of all the

individual supply curves of producers competing to supply
that product.
In general, the supply curve for any product will slope

upwards, showing that as prices rises, quantity supplied
efforts.
An extension in supply is when the price of a product rises, quantity supplied rises or extends.
A contraction in supply is when the price of a product falls, quantity supplied contracts.
Conditions of supply
An increase in supply: producers are now more willing and able to supply a product than they were
before all possible prices.
The market supply curve shifts out to the right.
A fall in supply: producers are now less willing and able to supply a product at each and every price
than they were before at all
possible prices. The market supply curve shifts out to the left.
Market equilibrium & market disequilibrium
Market equilibrium: the price at which the amount supplied equals or satisfies the amount
demanded.
Market disequilibrium: when demand does not equal supply.
When a market is in disequilibrium: the market supply does not match the market demand, there
will be pressures to change the market price.
Here there will be excess demand (shortage, price rise) or excess supply (surplus, price fall)
Price elasticity of demand
Price elasticity of demand: the responsiveness of consumer demand to changes
MISSED
I could not write the entire note.
Calculations of PED
PED = % CHANGE IN QUANTITY DEMANDED

% CHANGE IN PRICE
% CHANGE IN QUANTITY DEMANDED: CHANGE IN QUANTITY X 100

ORIGINAL QUALITY 1
% CHANGE IN PRICE =CHANGE IN PRICE X 100

ORIGINAL PRICE 1
Factors that can determine whether demand is price elastic or inelastic
1. If the product is a necessity - basic foods and medicine is difficult to go without, even if
their price is increased, hence they are price inelastic.
2. The number of close substitutes a product has: when consumers can choose between a
large number of substitutes for a particular product (washing liquids, soaps) demand for
any of them would be price elastic.
3. The amount of time consumers have to search for substitutes: if the price of a product
rises, consumers will search for cheaper substitutes; price elastic.
4. The cost of switching to a different supplier: switching demand to an alternative supplier
can be expensive, and may require long term contracts.
5. The proportion of consumer income spent on a product: goods such as matches or
newspapers are price inelastic in demand as they do not cost very much and do not take up
a lot of a person’s income.
Price elasticity of supply

Measures the responsiveness of quantity supplied to a change in price.
Calculations of PES
PES = %CHANGE IN QUANTITY SUPPLIED

% CHANGE IN PRICE
% CHANGE IN QUANTITY SUPPLIED = change in quantity x 100
Original quantity 1
% CHANGE IN PRICE = change in price x 100

Original price 1
Factors that determine how much and how quickly the supply of a product is
able to respond to increasing customer demand:
1. The availability of stock of finished goods and components: firms with
plenty of stock can increase the supply of their products relatively quickly
and easily.
2. Degrees of unused or spare production capacity: some firms may be able
to increase output of their goods or services relatively quickly if they have
spare or unused machinery and other equipment.
3. Time period required to adjust the scale of production: the supply of a
product will be less elastic if the increase of their output requires a longer
time period. (unable to respond immediately)
4. The mobility and availability of factors of production:
Market economic system
The decisions of consumers and producers determine what goods and services
are produced, how they are produced and who they are produced for.
The price mechanism: determines how the market economic system works and
how resource allocation decisions are made.
The price

Economics Notes

Uploaded by

Copyright:

Available Formats

Economics Notes

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Economics Notes

Uploaded by

Copyright:

Available Formats

Password: f3j4EF

In a free market, the price of a good or services will be determined by the

At equilibrium the market price for the product will be stable.

Microeconomics studies the economic decisions and actions of individuals,

Macroeconomics divides up the economy into many smaller parts or sectors.

Key resources allocation decision

Deciding how to best allocate limited resources to different productive

Three types of economic systems

Mixed economic system: ownership of scarce resources and decisions about

A mixed economy system combines the market system with a system of

The market demand for any given good or service shows

Shifts in demand curve.

An increase in demand: consumers now demand more a

A fall in demand: consumers now demand less of a product

The market supply of a product will be the sum of all the

In general, the supply curve for any product will slope

Market disequilibrium: when demand does not equal supply.

Price elasticity of demand

Price elasticity of demand: the responsiveness of consumer demand to changes

PED = % CHANGE IN QUANTITY DEMANDED

% CHANGE IN QUANTITY DEMANDED: CHANGE IN QUANTITY X 100

% CHANGE IN PRICE =CHANGE IN PRICE X 100

Factors that can determine whether demand is price elastic or inelastic

Price elasticity of supply

PES = %CHANGE IN QUANTITY SUPPLIED

% CHANGE IN PRICE = change in price x 100

Market economic system

You might also like