ECONOMICS – I – [1.2]

• Defining terms – define once per article but refer back

• Be clearly specific – don’t assume I know etc

• Simplified models – PPC and PPF

• Q p72 TBC

• The MARKET – buyers and sellers MUST be both

• Demand and supply of goods and services – graphs

• Demand is amount ACTUALLY bought (not wish)

• DEMAND = the amount of a good or service that is bought at a particular price over a particular time period

ECONOMICS – I – [1.2]

• Demand function - INVERSE• Relationship – many relationships in econ• QDx = f (Px)• Substitutes and complements QDx = f (Px; Ps; Pc)• , income & ability to buy, QDx = f (Px; Ps; Pc; Y)• Y = Income (I = Investment) • Positive correlation = normal good (v “inferior” [inverse] goods)• Goods can be one or other depending on attitudes – bikes• Ceteris paribus = simplified model, change one variable at a time• Plot it• Demand function = whole curve, actual demand = point on line• Many factors affecting demand• (veblen = vv, luxury goods, giffen = vv, inferior goods)

ΔDΔY

ECONOMICS – I – [1.5]

• THEORY OF DEMAND• DEMAND CAN BE DEFINED AS THE QUANTITY OF

GOODS AND SERVICES CONSUMERS ARE WILLING AND ABLE TO PURCHASE AT VARIOUS PRICES OVER A PERIOD OF TIME.

• THE LAW OF DEMAND STATES THAT THERE IS AN INVERSE RELATIONSHIP BETWEEN DEMAND AND QUANTITY DEMANDED. THUS IF PRICE FALLS QUANTITY DEMANDED RISES AND VICE VERSA. THEREFORE, THE LAW OF DEMAND IS OFTEN REFERRED TO AS THE LAW OF DOWNWARD-SLOPING DEMAND. THIS SHIFT IN DEMAND IS ILLUSTRATED BY MOVEMENT ALONG AS EXISTING DEMAND CURVE.

ECONOMICS – I – A [1-10]

• PRICE IS NOT THE ONLY FACTOR THAT AFFECTS DEMAND. AS PRICE CHANGES, QUANTITY DEMANDED CHANGES. DEMAND DEPENDS ON A NUMBER OF DIFFERENT FACTORS AND A CHANGE IN ANY ONE OF THESE CAN CAUSE THE DEMAND CURVE TO SHIFT LEFT OR RIGHT

• PRICE CHANGE – ALONG CURVE• OTHER CHANGE – CURVE SHIFTS

ECONOMICS – I – [1.10]• FIVE MAJOR NON-PRICE FACTORS AFFECTING DEMAND• 1. SIZE OF THE MARKET• AN INCREASE IN THE SIZE OF THE MARKET FOR A PRODUCT

BRINGS AN INCREASE IN DEMAND AND VICE VERSA• 2. INCOME• DEMAND FOR MOST GOODS WILL RISE IF THERE IS A GENERAL

INCREASE IN INCOME• 3. PRICE AND AVAILABILITY OF RELATED GOODS• THIS REFERS TO GOODS THAT CAN BE INTERCHANGED FOR ONE

ANOTHER• 4. TASTES• CHANGING MARKET PLACE CAN ALSO LEAD TO A CHANGE IN THE

QUANTITY DEMANDED• 5. EXPECTATIONS• EXPECTATIONS OF PRICE INCREASES WILL SHIFT THE DEMAND

CURVE TO THE RIGHT, AND EXPECTATIONS OF PRICE DECREASES WILL SHIFT THE DEMAND CURVE TO THE LEFT

Ceilings & FloorsGovernment Intervention (interference?)

Subsidies & QuotasQuotas:Inflicted on firms/industries/imports

Restricted supply – prices up

Subsidies & QuotasSubsidies:Given to firms / exporters to lower costs

Increased supply = lower prices = more sold (NB elasticity)