Microeconomics terms

• Infinite 


  without limits
• Finite


  having an end or a limit
• The economics problem

  • When the world's resources are scarce, people's wants are infinite
  • demand greater than supply
  • when allocating a nation's resource to different users
• Needs

  basic requirement for human capital
• Wants

  people's desire for goods and services
• scare resources

  amount of resources available when the supply is limited
• Production Possibility Curve

  maximum possible output of two goods an economy can produce if all resources have been used
• Consumer goods

  those purchased by households such as food, cars, furniture
• Capital goods 


  those purchased by firms and used to produce other goods such as machinery, tools and equipment
• Positive economic growth (shift outwards PPC) -> produced more

  • new technology
  • improved efficiency
  • education and training
  • new resources
• Negative economic growth (PPC shift inwards) -> less produced

  • run out of natural resources
  • experienced, skilled workers moving overseas
  • wars
  • weather conditions
• Demand

  the amount of goods and services consumers are willing to able to buy at a given price
• Supply

  the amount of goods and services producers are willing and able to supply and offer to consumer at a given price
• Factors that shift the demand curve:(AIDSFC)

  1. advirtisement
  2. income
  3. demographic changes
  4. substitute goods
  5. fashion and tastes
  6. complementary goods
• Substitute goods 


  goods bought as an alternative to another but perform the same function (e.g. Coca cola and Pepsi)
• Complementary goods 


  goods purcahsed together because they are consumed together
• Factors that shift the supply curve: SINCC

  1. Subsidies
  2. Indirect taxes
  3. Natural factors
  4. Changes in technology
  5. Cost of production
• Fixed supply

  • vertical
  • impossible to raise or decrease supply no matter how price rise or falls
• Indirect taxes

  taxes levied on spending (e.g. VAT)
• Equilibrium price

  price at which supply and demand are equal
• Market clearing price

  price at which the amount supplied in a market matches exactly the amount demanded
• Excess demand

  when demand is greater than quantity supplied
• Excess supply

  where supply is greater than the amount demanded
• Price elasticity of demand

  the responsivness of demand to a change in price
• Price elasticity of supply

  the responsiveness of supply to a change in price
• Inelastic demand

  change in price results in a proportionally smaller change in quantity demanded
• Elastic demand

  change in price which results in a greater change in the quantity demanded
• Demand unitary elastic 


  -1

  
• Perfectly elastic(demand/supply)

  infinity

  
• Elastic demand

  greater than 1

  
• Inelastic demand

  less than 1

  
• Factors affecting PED:(ANTI)

  1. Availability of substitutes
  2. Necessity
  3. Time
  4. Income spent on goods and services (%)
• PED formula

  in percentage:

  A) percentage change in quantity demanded

  B) percentage change in price

  
• Formula of PES:

  formula:

  A) percentage change in quantity supplied

  B) percentage change in price

  
• Inelastic supply

  less than 1

  
• Elastic supply

  greater than 1

  
• Perfectly inelastic (demand/supply)

  0

  
• Supply unitary elastic

  1

  
• Factors influencing PES:(FATS)

  1. Factors of production
  2. Availability of stocks
  3. Time
  4. Spare capacity
• Income elasticity

  the responsiveness of demand to the change in income