Demand & supply

• Expectation of future prices (demand)

  If consumers know the price of goods will increase in future, ceteris paribus, the current demand for good will increase (eg Daiso $2)

  Why? Cuz they want to maximise their utility within their given budget and want to avoid paying higher for the same good in future.

  Exception: perishable goods (fruits & veg)
• Government policies (demand)

  control-and-command measures: improve/reduce access to specific goods directly (raising/lowering the legal age of alcohol)

  altering credit conditions measures: improve/reduce access to specific goods (rules on the use of credit cards)
• income (Y demand)

  Consumer income rise -> ability to buy rise -> increase demand (as rational utility maximisers) <<normal good>>

  Exception: inferior good. inferior to rich but normal to poor. consumer income rise --> decrease demand
• Price & availability of related goods (competitive demand)

  • meaning: pair of goods considered by consumers to be alternatives  to each other with the level of utility derived being similar
  • when the price of one falls, rational utility maximisers will switch to buying the other good, so the quantity demanded for the other good will increase
  • when more types of the good are the available-- the quantity demanded of the good decrease
• Price & availability of related goods (joint demand)


  • meaning: pair of goods consumed together to satisfy the same want
  • when the price of good increase, the price of the other good also increase
  • both goods i want
• Price & availability of related goods (derived demand)


  • Demand for one good occurs as a result of demand for another (demand for steel occurs as a result of demand for cars)
  • only one out of the 2 goods i want
• Price & availability of related goods (composite demand)

  demand for good has multiple uses
• Taste & preferences(demand)

  more desirable the good is, the more they demand at any given price to maximise their utility (eg. through advertisement)
• Others (demand)

  • Change in demography of population (size/distribution)
  • festive seasons
• define demand:

  quantity of a good / service that a consumer is both willing and able to buy at each possible price during a given period of time, ceteris paribus
• define quantity demanded:

  amount of good that a consumer is willing and able to buy at a given price over a given period of time
• define supply:

  quantity of good/service that a producer is both willing and able to sell at each possible price during a given period of time, ceteris paribus
• define quantity supplied:

  amount of a good that a producer is both willing and able to sell at a given price during a given period of time, ceteris paribus
• Government policies (supply)

  Indirect tax

  • meaning: levy imposed by the gov to increase marginal cost of production (immediate effect)
  • Specific tax -- fixed rate per physical unit of output (parallel upward shift)
  • Ad-valorem tax -- percentage of the price per unit of output (pivotal shift)

  Subsidy

  • meaning: provision of money and other resources by gov to support person/business activity
  • Indirect subsidies -- decrease marginal cost of production
  • specific & Ad-valorem subsidies --same

  Directives, Legislation, extend financing schemes to firms, technical support
• Expectation of future prices (supply)

  If price of good expected to rise, producers can temporarily hold back amount goods release into market to sell at higher price in future. Current supply falls  cuz unwilling to supply at current time.
• Related goods prices (supply)

  
  

  (JOINT SUPPLY)

  • meaning: more production of one leads to more production of the other (slaughter more cow for meat and leather)
  • when price of meat increases, profit-maximising firms will kill more in respond and simultaneously increase supply of leather into market

  (COMPETITITVE SUPPLY)

  • meaning: increase production of one leads to diverting resources away from producing the other (same source but can produce diff kind of goods
• Marginal goods (supply)

  When the marginal cost of good rises, firms reduce supply to avoid marginal losses. vice versa to increase marginal profits

  • Price of factor outputs (wages, raw material prices..) -- change cost of producing an  additional unit of good
  • Technology (automation, better management practices) -- improvement in scientific knowledge and organizational changes lowers MC of production relative to marginal revenue
• no. of Sellers (supply)

  no. of sellers increases due to supernormal profits thus = more competition = market supply increase
• others (supply)

  Unpredicted events (weather, natural disaster, industrial dispute, political unrest)