Microeconomics

• Demand is the quantity of a good/service consumers are willing and able to buy at a given price in a given time period.
• Consumers have to be both willing and able (effective) for consumers to buy something.
• The law of demand states that there is an inverse relationship between price and quantity demanded.
• Our demand curve is downward sloping to demonstrate the law of demand.
• If price increases, there will be a decrease in demand.
• If price decreases, there will be an increase in demand.
• Ceteris paribus means all other factors remain the same.
• Changes in demand is shown by movement along the demand curve.
• When price increases, the movement along the curve is called a contraction in demand.
• When price decreases, the movement along the curve is called an extension in demand.
• The income and substitution effect explains why the demand curve slopes downward.
• The income effect shows that as prices increase our purchasing power decreases meaning we demand less.
• The substitution effect shows that as prices increase, we change our consumption to substitute goods, this allows our income to stretch further.
• Non price factors will shift the demand curve.
• If demand decreases by a non-price factor, demand shifts to the left.
• PASIFIC factors will shift the demand curve.
• PASIFIC factors shifting the demand curve:

  -          Population

  -          Advertising

  -          Substitutes

  -          Income

  -          Fashion

  -          Interest rates

  -          Complements price
• Normal goods – demand for these will increase as incomes increase, when our income decreases, demand will decrease.
• Inferior goods – as income increases demand will decrease, when income decreases demand will increase.
• A complement good is a good often brought with another.
• Supply is the quantity of a good/service producers are willing and able to produce at a given price in a given time period.
• The law of supply states that there is a direct relationship between price and quantity supplied.
• The law of demand explains why the supply curve slopes upwards sloping.
• When there is an increase in supply, the curve shifts upward this is called an extension of supply.
• When there is a decrease in supply, the curve shifts downward this is called a contraction of supply.
• When the price of a good or service itself changes, we move along the supply curve.
• If the price of a good increases, there is potentially more profit to be made if they can produce more and sell more.
• When quantity demanded increases, costs of production also increase to produce extra units, this means suppliers demand a higher price to allow them to maintain profit margins.
• When prices are higher, there is more profit to be made, if they produce more and sell more, and want to maintain profit margins.
• Non price factors will shift the supply curve.
• If non price factors increase supply, supply will shift to the right.
• If non price factors decrease supply, supply will shift to the left.
• Lots of non-price factors will affect costs of production.
• Costs of production affect the willingness and ability to supply.
• An increase in costs of production will shift the supply line to the left.
• A decrease in costs of production will shift the supply line to the right.
• PINTSWC are the non-price factors which shift supply.
• PINTSWC to shift supply stands for:

  -          Productivity

  -          Indirect tax

  -          Number of firms

  -          Technology

  -          Subsidy

  -          Weather

  -          Costs of production
• A subsidy is a money grant given by governments to producers, to lower costs of production and to encourage an increase in output.
• Subsidies cause a shift of the supply line to the right.