Economics

• Microeconomics: is concerned with explaining the behaviour of individual consumers and producers
• macroeconomics: is concerned with the whole economy, analyses he business cycle
• economic problem: the problem of scarcity, limited resources relative to the limited wants
• free good: a good for which there is no scarcity
• Demand refers to the buying intention of consumers
• A demand schedule is a list of prices and corresponding quantities demanded
• Law of demand: The quantity demanded of a good decreases when the price of a good increases due to the income effect and substitution effect
• Factors affecting demand include price, income, population, tastes and preferences, prices of substitutes and complements, and expected future prices
• Changes in price lead to either a contraction (price increase) or an expansion (price decrease) of demand, shown as movements along the demand curve
• Non-price factors like taste, income, related goods, expectations of future price changes, and size of population influence demand, leading to shifts in the demand curve
• Tastes and preferences: Demand increases if people's tastes change in favor of a good, and decreases if tastes change against it
• Income: Demand increases with higher income for normal goods, but decreases for inferior goods
• Related goods - Substitutes: When the price of one substitute increases, demand for the other substitute increases
• Related goods - Complements: When the price of one complement increases, demand for the other complement decreases
• Expectations of future price changes: If consumers expect a price increase, immediate demand increases; if they expect a decrease, immediate demand decreases
• Size of population/demographics: Demand increases with more consumers and decreases with fewer consumers in a market
• Supply represents the sellers or producers side of the market
• Supply is the amount of a good or service that producers are willing and able to sell at a particular price and at a particular point in time
• The law of supply states that all other factors being equal, the quantity supplied of a good increases when the price of a good increases
• When supply is shown on a graph, it is called a supply curve, recognized by its upward sloping line
• A supply schedule shows the relationship between price and quantity supplied in a non-graphical form
• Price affects supply: if the price of a good/service increases, supply will increase, known as an expansion; if the price decreases, supply will decrease, known as a contraction
• Non-price factors influencing supply include technology, international events/disasters, government intervention, expectations for future price changes, resource cost (production), prices of other goods, and the number of sellers in the market
• Technology advancements lead to more efficient production and increased supply (shifts to the right)
• International events or natural disasters decrease supply (shifts to the left)
• Government intervention like taxes, fees, regulations, and subsidies affect supply: taxes decrease supply, subsidies increase supply
• Expectations of future price changes impact supply: if producers expect a price increase, immediate supply decreases; if they expect a price decrease, immediate supply increases
• Resource costs like land, labor, and capital affect production costs and the ability to supply a good: if input prices increase, sellers supply less; if input prices decrease, sellers supply more
• Prices of other goods influence supply: producers monitor prices of other goods they supply and adjust supply accordingly to profit opportunities
• The number of sellers in the market affects supply: additional firms entering increase supply, while firms exiting decrease supply