economics

• captial 


  man made goods
• land 


  natural resources
• labour


  human skills/ prouduction
• economic problem


  how to balance infinite needs and wants with limited resources
• oppoutunity costs 


  the next best alternative

  tradeoffs- making a choice between consumer goods, relocating our resources creates an oppoutunity cost
• demand 


  the willingness and ability to buy a good at different prices
• law of demand 


  higher quantity will be demand at lower prices, lower quantity will be demanded at higher prices
• non- price factors of demand

  income, number of buyers, trends, ads, tastes and preferences, season, complementray goods, substitute goods
• expansion of quantity demanded

  prices decreases, quantity demanded goes up

  a right movement
• contraction on qty demanded

  price increases, qty demanded decreases

  a left movement
• complementary goods


  positive relationship, jointly demanded

  eg. car and fuel, dvd and a dvd player
• substitute goods 


  negative relationship

  eg. coke and pepsi, vegimite nad marmite
• shift in demand 


  increase in demand= right shift

  decrease in demand- left shift
• income effect 


  a change in ‘real’ income

  if the price falls, peoples ‘real’ income (the amount their incomes will buy) increases
• substitution effect 


  cheaper goods are more attractive

  if the price falls, the prouduct that is relatively more attractive compared to others consumers will buy it
• supply


  the quantity of a good or service that all firms in a industry are willing and able to offer for sale at different prices levels
• law of supply 


  as price increases, the quantity supplied of a good will increase, as price falls the quantity supplied will also fall

  prouducers will offer more at a higher price to maximise their revenue
• shifts in supply 


  shift right- increase in supply

  shift left- decrease in supply
• non-price factors of supply

  costs or production, technology, number of sellers, expectations of prouducers, price of other goods
• consumer surplus 


  benefit received by consumers

  in a free competitive market, consumers surplus is max

  
• prouducer surplus 


  benefit by prouducers who sell goods at a higher price
• elasticity 


  the consumer responsiveness to a change in price
• price elasticity of demand 


  if the price changes, how much does the quantity demanded change

  flat curve= more elastic

  steep curve= less elastic

  
• elastic demand 


  if the demand for a good is highly elastic it measn it is extremly responsive to the price

  eg. substitutes, luxury goods
• inelastic demand


  price does not have a large impact on the demand

  eg. necessities, luxury goods
• PED calculation 


  percentage change in qty demanded / percentage change in price
• what is CS 


  the amount a buyer is willing to pay minus the amount they actually paid
• what is PS


  amount a seller is paid minus the post of production
• taxes 


  have a deadweight loss

  allocative inefficiency

  
• price elasticity of supply

  measures the responsiveness of the qty supplied to a goods change in price
• PES calculation 


  percentage change in qty supplied / percentage change in price
• determinants of PES 


  spare capacity, time to prouduce, ability to store product, time
• subsidies 


  grant given by government to firms to increase their proudution and to reduce market prices (so consumers can buy necessities at cheaper prices)

  if a subsidy increases, leads to a fall in cost of prouduction
• subsidy calculation 


  unit per subsidy x quantity traded at new equilibrium
• subsidy graph 


  subsidy per unit- P3- P1

  
• price floors 


  the minimum price above market equilibrium

  the legal minimum on price which a good can be sold

  may cause surplus -> sellers are unable to sell all they want at the market price
• price floor graph

  eg. minimun wage

  A) surplus

  
• price ceiling 


  the maxiumum price below market equilibrium

  a legal maximum on the pricce at which a good can be sold

  may lead to shortges -> price is unable to rise to eliminate shortage
• price ceiling graph 


  eg. rent control

  
• market failure 


  the faliure of the market to allocate resources efficiently, resulting in overallocation , uner-allocation or no allocation of resources to the prouduction of a good relative to what is most desirable