Economics

• Factors which affect the level of demand?

  Population

  Ads

  Subsidies/tax

  Income

  Fashion/trends

  Complementary

  Substitutes
• When price increases demand decreases
• Which factors affect the level of supply?

  Productivity

  indirect taxes

  Number of firms

  Technology

  Subsidies

  Weather

  Cost of production
• • Equilibrium price and quantity is that price and quantity at which demand is equal to supply.
  • all products are sold and all wants are met. Therefore, the market is cleared
• If excess demand occurs, the price will rise to bring the quantity supplied back to its equilibrium position.
• when excess supply occurs, firms will have to lower their price in order to sell their product.
• Price elasticity of demand is a measure of the responsiveness of demand to a change in price
• • Goods that see a more than proportional change in demand if price changes are called price elastic.
• Goods that see a less than proportional change in demand if price changes are called price inelastic
• When calculating PED, a figure less than one is price inelastic.
• When calculating PED, a price more than one, is price elastic.
• For a price inelastic good, movements in price and revenue always go the same way. If price goes up, so does revenue.
• For a price elastic good, movements in price and revenue always go the opposite way. If price goes up, revenue goes down.
• A perfectly inelastic product will have a PED coefficient of 0.

  If price was to change the quantity demanded would not be affected.

  In theory, the firm could charge as high a price as it wanted.
• A perfectly elastic product will have a PED coefficient of ∞ 

  If price was to change the quantity demanded would be infinite.

  In theory, the firm could not increase price as there would be no demand.
• What are the determinents of PED?

  Substitutes

  Percentage of income

  Luxury or necessity

  Addiction (Habit)

  Time
• • Price elasticity of supply (PES) is a measure of the responsiveness of quantity supplied to a change in price
• A perfectly inelastic supply curve will have a PES coefficient of 0.

  If price was to change the quantity supplied would not be affected.

  In theory, the firm would supply the same amount at any given price.
• A price inelastic supply curve will have a PES coefficient between 0 and 1.

  If price was to change the quantity supplied would change by a lesser amount.  

  This may be because of difficulties in increasing supply or that the incentive to increase supply is not great enough for some firms.
• Which factors increase the production possibility front?

  Land - New resources

  Labour - improved efficiency, better education/training

  Enterprise

  Capital (eg. new tech)
• PPF curves shows the different combinations of two goods an economy can produce if all resources are used up.
• What is a merit good?

  Goods and services that the government feels that people will under-consume based off their ability to pay.
• Public Sector: government provides goods and services
• Profit: when total revenue is greater than costs
• Division of labour occurs when a firm breaks up the production process and each worker specialises in one task.
• How to improve land (factors of production):

  • fertilisers and pests
  • drainage
  • irrigation
  • reclamation
• How to improve labour (factors of production):

  • training
  • Migration
  • improved motivation
  • Improved working practice (the way labour is organised)
• How to improve capital (factors of production):

  Primary sector (agriculture) - fertlisers, tractors

  Secondary sector (manufacturing) - new techology such as robots or computer numerically controlled (CNC) machines

  tertiary sector (services) - technology (makes everything more convenient for the consumer)
• Fixed costs don't vary with output. Therefore they have to be recoverd in order to generate profit.

  Variable cost per unit is the extra cost of making one extra unit. All variable vary with output.
• Public goods - not provided by the market because it won't generate enough profits
• Merit goods - would be underprovided by the market because the benefit would not be realised by the consumer