LS10-LS11 Booklet

• excess demand is when the price of a good is lower than the equilibrium price
• excess demand occurs when there are more consumers wanting to buy the product than suppliers are willing to supply
• excess supply is when quantity supplied of a good or service is more than the quantity demanded
• excess demand is when quantity supplied of a good or service is less than the quantity demanded
• equilibrium price is when the price at which quantity demanded is equal to quantity supplied
• a rise in incomes increased demand as more people will be able to afford the product. However, a rise in incomes can cause a rise in prices, which increases supply
• an increase in the cost of raw materials decreases supply due to higher production costs. These higher costs force prices to increase, which lowers demand
• technological improvements in machinery will increase supply as production becomes more efficient. This will decrease prices. Demand increases as goods become more affordable
• bartar - trading goods
• bartar takes a lot of time and effort to find traders to bartar with
• direct tax - tax levied DIRECTLY to an individual or organisation
• indirect tax - tax levied on a good or service
• specific tax - causes PARALLEL SHIFT in SUPPLY curve. the tax is the same amount at ALL PRICES
• Ad-Volorem tax - causes NON PARALLEL SHIFT in SUPPLY curve. the tax increases as amount sold increases
• examples of specific tax: fuel, beer
• examples of ad volorem tax: VAT and imports
• Governments impose tax increases order to raise government revenue or to discourage certain economic activities (e.g buying a harmful product)
• grants aren’t paid back
• Governments give firms subsidies to encourage production
• subsidy: grant given to firms by the government to reduce the cost of production and to increase production, so the firm can produce more
• subsidies decrease the price of a good or service (due to low production cost) which then increases demand