Yr 10 Economics

• Economics is a social science that studies how society uses its limited resources to satisfy its unlimited wants
• Economics is important because it helps you gain a better understanding of what's going on around you, and enables you to make informed decisions about your own financial well being
• Microeconomics is the study of economics at an individual, group/section, or company level. It focuses on issues that affect individuals or companies.
• Macroeconomics is the study of a national economy as a whole. It focuses on issues that affect the whole economy.
• Demand is the quantity of a good or service that a consumer is both willing and able to buy at a particular price and time.
• Supply is the quantity of a good or service that a producer is willing and able to sell at a particular price and time.
• The Law of Demand shows that there is an inverse (opposite) or negative relationship between price and quantity demanded. This means that when the price for a good or service rises, the quantity demanded will contract, and when the price for a good or service falls, the quantity demanded will expand.
• The economic problem refers to limited resources and unlimited wants.
• Scarcity refers to not having enough resources to satisfy our needs and wants.
• The opportunity cost of a good or service is the next best alternative foregone, the opportunity missed (not the monetary value).
• The two reasons that explain the law of demand are the income effect and the substitution effect.
• The income effect is when a price rises and it effects a consumers real income (what they can actually buy with their money) - people have less money to spend so they demand less of the good.
• An example of the income effect is if your income is 10 and zooper doopers are 1, you can buy 10. If the price rises to 2, then you are only able to buy 5.
• The substitution effect occurs when the price of a good rises, and in turn, alternatives (substitutes) are relatively cheaper and therefore more attractive.
• An example of the substitution effect is when the price of zooper doopers rises form 1 to 2, twin poles are now a cheaper alternative.
• Non-price factors effecting demand include a change in the consumer's level of income, a change in the price of a complementary good, a change in the price of a substitute good, a change in tastes and preferences (advertising + media), consumer expectations, and weather/exogenous events.
• An example of a change in the consumer's level of income is a promotion or demotion, or if taxes are raised.
• An example of a complementary good is a laptop and charger, car and petrol (If one goes up the other goes down and vice versa)
• An example of a substitute good is coke and pepsi, KFC and MacDonald's. (If one price increases, than the demand for the other increases.)
• An example of a change in tastes and preferences are trends (fashion) and media influence.
• An example of consumer expectations is if a consumer thinks that petrol will increase the next day, they will buy it before, therefore inadvertently causing the change (because when a product is popular the price rises and vice versa).
• An example of weather/exogenous events are seasonal clothing (bathers, jumpers.)
• The law of supply shows that there is a positive relationship between price and quantity supplied. This means that when the price of a good or service falls, quantity supplied will contract (because the producer would prefer to sell something else to gain a higher profit).
• Non-price factors affecting supply are a change in the cost of producing a good (resources), a change in technology used to produce the good (increases production), supplier expectations, and weather/exogenous events.
• A market is where producers and consumers interact to exchange goods and services at an agreed price.
• Equilibrium occurs when consumers and producers agree to exchange the same quantity of goods and services at the same price.
• A surplus is where the quantity supplied is greater than quantity demanded (QS>QD). This occurs when price is higher than the equilibrium - the surplus is the signal producers should lower their prices.
• The point of intersection of the two curves in a market graph is the equilibrium.
• A shortage is when quantity demanded is greater than quantity supplied (QD>QS). This ccurs when price is lower than the equilibrium - the shortage is a signal to a producer they should raise the price.
• The 7 steps for a market graph explanation.

  1. Equilibrium.
  2. Change and why and curve shift
  3. shortage or surplus
  4. price either increase or decrease
  5. how demand reacts to price
  6. how supply reacts to price
  7. New equilibrium.