Economics

• The equilibrium price is the price at which the quantity supplied equals the quantity demanded.
• 1.     Relative scarcity is the concept describing the imbalance between our wants, which are virtually unlimited, and our available resources, which are limited (finite).
• Allocative efficiency is the desirable situation when resources are used to produce those goods and services that best maximise the overall satisfaction of society’s needs and wants. Productive, or technical, efficiency is the use of the lowest cost production methods and minimising wastage of resources in the provision of goods and services.

• Intertemporal efficiency refers to finding the optimal balance between current consumption by spending income now, and the saving of some of that income to finance investment and potential future consumption. Dynamic efficiency refers to the speed at which resources can be reallocated as needed to meet changing needs and choices of consumers.
• A market serves as a meeting place for buyers and sellers, where they engage in the exchange of goods and services through negotiations on prices. This process is facilitated by the price mechanism, which not only signals the value of items but also efficiently allocates resources to produce goods and services that cater to the needs of society. In the Australian economy, diverse markets, including those for products, labor, finance, property, and food, contribute to the overall economic landscape.
• Economic growth occurs when an economy increases its output over time. Economic development involves economic growth combined with improvements in living standards.
• 3.     The law of supply states that as the price of a good rises, producers will be encouraged to increase their output; conversely, if the price falls, they will reduce their output.
• Perfect competition:

  • Many buyers and sellers in the market
  • Both buyers and sellers have perfect knowledge of market conditions
  • Sellers are all price takers with limited market power
  • Products are homogeneous
  • Ease of entry and exit in the market
• Monopolistic competition:

  • Relatively smaller number of sellers
  • Imperfect knowledge of market conditions for many buyers and sellers
  • Some sellers have greater market power to determine prices
  • Product differentiation in terms of colour, design, level of service
  • Lesser ease of entry or exit in the market
• Demand is the quantity of a good or service that consumers are willing to purchase at a particular price, during some specified period of time. The law of demand simply states that as the price of a good rises, the quantity that consumers demand will fall, and as the price falls, the quantity demanded rises. There is an inverse relationship between the price of a good and the quantity demanded.
• Expansion in demand occurs when the price falls and consequently there is a movement downward along the demand curve, representing a greater level of demand for the product. A contraction in demand occurs when there is a price rise and a consequent movement upwards along the demand curve, representing a reduced demand for the product.
• Supply is the quantity of a particular good or service that producers (or firms) are willing to offer for sale at a particular price, during some specified period of time. The law of supply states that there is a direct relationship between the price of a good and the quantity that sellers will put onto the market. As the price rises, the quantity supplied rises; as the price falls, the quantity supplied falls.
• Expansion in supply occurs when the price rises and consequently there is a movement upward along the supply curve, representing a greater willingness of sellers to supply the product. A contraction in supply occurs when there is a price fall and a consequent movement downwards along the supply curve, representing a reduced willingness of sellers to supply the product.
• The law of demand simply states that as the price of a good rises, the quantity that consumers demand will fall; as the price falls, the quantity demanded rises. There is an inverse relationship between the price of a good and the quantity demanded.
• 1.     Non-price demand factors are those factors that might increase or decrease the quantity of a particular good or service that buyers are prepared to demand at a given price, leading to either an increase or a decrease in the demand line on the demand–supply diagram, and a consequent shift in the curve to the right or left.
• Non-price supply factors are those that either increase or decrease the quantity of a particular good or service that sellers are prepared to supply at any given price, leading to a shift in the position of the whole supply line.
• A movement along the demand line represents an extension or contraction of demand as a result of changes in price. A shift of the demand line represents an increase or decrease in demand at any given price, as a result of non-price demand factors.
• A movement along the supply line represents an extension or contraction of supply as a result of changes in price. A shift of the supply line represents an increase or decrease in supply at any given price, as a result of non-price supply factors.
• Relative prices, comparing the cost of one good or resource to another, impact relative profits in markets; as prices rise, profits increase, signalling shortages, while falling prices indicate surpluses, leading to decreased profits and resource reallocation. This dynamic encourages owners to allocate resources where relative prices and profits are favourable, influencing production levels.

   
• Elasticity of demand refers to how responsive quantity demand is to a change in price. (It refers to how much quantity demanded changes when the price changes)
• If PED > 1, demand is elastic. This means that a change in price will lead to a relatively larger change in the quantity demanded. The larger the value of PED, the more elastic demand is in the market. A demand curve for highly elastic demand, which is shallow.
• If PED < 1, demand is inelastic. This implies that a change in price will result in a less than proportional change in quantity demanded. The demand curve for inelastic demand is steep.
• Elasticity of supply refers to how responsive quantity supplied is to a change in price.
• If PES < 1, supply is inelastic. This means that a change in price will lead to a relatively smaller change in quantity supplied. The smaller the value of PES, the less elastic it is. A supply curve for highly inelastic supply, which is steep
• Substitution Effect: Refers to the change in quantity demanded caused by consumers switching to alternative goods due to a change in relative prices.
• Income Effect: Describes the change in quantity demanded resulting from a change in real income due to a price change.
• • Relative prices guide the allocation of resources by signaling to producers and consumers the scarcity and desirability of goods and services relative to one another.
• Three Basic Economic Questions: What to produce (allocation of resources), how to produce (technology and methods), and for whom to produce (distribution of goods and services).
• Production Possibility Frontier (PPF) Model: A graphical representation showing the maximum output combinations of two goods that an economy can produce given its resources and technology. Points on the curve represent efficient allocations, while points inside the curve signify underutilization and points outside are unattainable.