Principles of economics, year 1 IBMS block 1.
Chapter 3.
I passed my economics with a 7.6 using also this document. I really tried to describe it in my own words. Which can make it more easy to understand. I explain the jargon in a less difficult way.
In a competitive market you have a large number of independently
acting buyers and sellers.
The concept of demand can be summarized by a schedule or curve
showing the quantity of a product that would be consumed at
various possible prices.
A buyer’s intentions or plans in regard to the purchase of a product is
known as demand.
The description of law of demand is:
All other things being equal, as prices decrease, quantity demand
increase. All other things being equal, as prices increase, quantity
demand decreases. This is a negative or inverse relationship:
an inverse relationship between two variable is a negative
relationship. ( +/- and -/+)
Diminishing marginal utility states that, in any specific time period,
buyers will derive less satisfaction from each additional unit of the
product consumed.
The income effect is best described as lower price increasing the
purchasing power of income, enabling consumers to purchase more
of a product and vice versa.
Quantity demanded is illustrated on the horizontal (x) axis, while
price is illustrated on the vertical (y) axis.
The supply curve measures quantity supplied on the horizontal axis
and price on the vertical axis.
A demand curve measures quantity demand on the horizontal axis
and price on the vertical axis.
The following are determinants of demands:
- Consumer expectations;
- Consumer tastes;
, - Changes in income;
- Number of buyers;
- Prices of related goods.
The number of buyers is a determinant of market demand.
Price of related goods is determinant of demand.
Increased demand when consumer incomes fall are called inferior
goods.
Goods whose demand varies inversely with money income are called
inferior goods.
Substitute goods affect the demand for another product due to a
change in their price. An example is Pepsi and Cola.
The vast majority of goods that are not related to one another are
called independent goods.
Price has the greatest effect on the quantity supplied that producers
are willing and able to supply.
The law of supply states, all else equal, the quantity supplies rises or
falls as prices rise and fall resulting in higher or lower profits,
respectively.
Other things equal, firms will produce and offer for sale more of their
product at a high price than at a low price.
In general, a firm will increase output of a good or service if the
resource cost of the units falls.
When each additional worker of a firm produces less additional
output then previously added workers, then the marginal cost of
additional units of output rises.
If costs of production rise, the producer has incentive to produce less
output.
The supply curve illustrated the relationship between:
Price and quantity supplied.
Determinants of supply:
- Technology;
- Taxes and subsidies;
- Resource prices;
- Substitution;
- Producer expectations;
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