Microeconomics

• Quantity demanded is the quantity of a good or service that consumers are willing and able to buy at a given price.
• Quantity supplied is the quantity of a good or service that a firm is willing and able to supply at a given price.
• The effect that a per unit subsidy has on a market:

  Both producer and consumer surplus increases but a deadweight loss is created.
• A 10% tax on a bag of cookies is an example of what kind of tax?

  Ad valorem tax
• A 10-cent tax on a bag of cookies is an example of what kind of tax?

  Specific tax
• Knowledge of PED helps firms to make decisions on the prices of their product and the consequent change in quantity demanded.
• The more specific a product is, the more substitutes there are for it.
• Determinants of PES (TICCS)

  1. Time: to adjust to new prices
  2. Inventory: ability to store products for a period of time
  3. Costs: of factors of production
  4. Capacity: how much spare capacity to produce left?
  5. Substitutes: how easily can factors of production be substituted?
• Determinants of Supply (ROTTEN)

  1. Resource costs
  2. Other goods' prices
  3. Taxes and subsidies
  4. Technological changes
  5. Expectations of producers (regarding future prices)
  6. Number of sellers
• Determinants of Demand (TRIBES)

  1. Tastes and preferences
  2. Related goods (regarding their prices)
  3. Income of consumers
  4. Buyers (number of)
  5. Expectations of consumers (regarding future prices)
  6. Special circumstances
• Subsidy


  A payment from the government to the producers for each unit produced to encourage output or reduce costs of production.
• Direct provision


  When goods and services are supported by the government deemed to be in the best interest of the public
• Command and control regulation and legislation


  Direct rules of laws governing an activity or industry, stating what is permitted and what is illegal
• Price elasticity of demand (PED)


  responsiveness of quantity demanded to a change in price
• Price elasticity of supply (PES)

  responsiveness of quantity supplied to a change in price
• Demand (or effective demand)

  How much of a good or service people are willing and able to buy in a given time period
• The law of demand states that there is an inversely proportional relationship between quantity demanded and price. As price increases, quantity demanded decreases. Vice versa.
• Normal goods


  Products that are brought more frequently as a consumer's income increases.
• Inferior goods


  Products that are bought more frequently as a consumer's income decreases.
• Complements


  Products that are commonly bought together such as phones and chargers.
• Substitutes


  Products that can replace one another such as a metal fork and a plastic fork.
• Supply


  How much of a good or service firms are willing and able to sell in a given time period
• The law of supply states that there is a positive relationship between quantity supplied and price. As price increases, quantity supplied increases. Vice versa.
• Income elasticity of demand (YED)

  The responsiveness of quantity demanded due to a change in real income of consumers
• Significance of YED signs