Elasticity We have no covered how much demand and supply changes when any factors, including price of the product changes. This is where the concept of elasticity comes in, which is: A numerical estimate It measures the response to a change in price or any other...
Allocative Efficiency For efficiency to happen, the factors of production must be fully employed to meet consumers’ needs The prices charged by the producers should be at the lowest level With allocative efficiency, scarce resources are used to produce the...
Effects of a Change in Demand or Supply on the Equilibrium Position Within a market, the position of equilibrium could change due to: A change in demand, whereby the demand curve shifts to the right or left A change in supply, whereby the supply curve shifts to the...
How Prices are Determined As consumers, for many of the things we purchase, price is a very important consideration We always want to pay the lowest price we can For suppliers, their decision on whether to supply the market is based heavily on the price that they can...
Producer Surplus Producer surplus is much like consumer surplus As producers aim to maximise profits, they will be keen to supply to consumers who are willing to pay a price above what the producers are normally willing to accept If we go back to the previous table...
Other Factors Affecting Supply Other factors, aside from price, that affects a producer’s willingness to supply are: Costs of production Size and nature of the industry Government policy and other factors Costs of Production There are many things that can affect the...
A Change in Demand due to a Change in Non-Price Factors It is clear that changes in consumer income, the prices of other products, and tastes in fashion cause a change in demand for a product When this occurs, it results in a shift of the demand curve or schedule This...
A Change in Supply due to a Change in Non-Price Factors Costs or production, size and nature of the industry, government policy and other uncontrollable factors can result in the change in supply of a product This means that a different quantity is now being supplied...
Demand Demand is what consumers want However, what consumers want and what they demand are not the same thing for two reasons Wants are unlimited. We would always like to consume more or consume things we aspire to e.g. Rolex watches Demand is that to consume a...
Calculation of Total Expenditure and Total Revenue Data which is drawn from a demand curve can be used to calculate the total expenditure made by the consumer In turn, this is the total revenue or sales of the producer Total Expenditure = (price x quantity demanded)...
Other Factors Affecting Demand Obviously, it is clear that price has a major effect on the quantity of a product that is demanded Price, however, is not the only reason or factor that affect demand Three non-price factors that influence the demand for a product are...
Relationship between price and Quantity Supplied Given the producer’s motivation to supply, it should be clear that there is a greater willingness to increase the quantity supplied when there is a rise in prices This is because firms are more likely to be making a...
The Supply Curve The supply curve is a representation between the price of a product and the quantity that is supplied Price is on the y axis, quantity supplied is on the x. The data for which a supply curve is derives is taken from a supply schedule This is a...
Supply Supply is what the producers of any type of product provide from the scarce resources available to them Through supply, they are aiming to meet the unlimited wants of consumers Supply in the market is in the hands of the producers This is whether we are...
What is a ‘Competitive Market’? In the previous chapter, the market economy was one of the three main types of economic system The market economy tries to resolve the economic problem via demand and supply, through the price mechanism But how do markets work? And how...
The Demand Curve The demand curve shows the relationship between the price of a product and the quantity demanded Price is plotted on the y-axis, demand on the x-axis. The data from which a demand curve is derived is the demand schedule The data for a demand schedule...
Relationship Between price and Quantity Demanded From prior experience, we know that if the price of something falls, we want it more Similarly, in a supermarket, a price reduction in a product we normally buy will result in an increase in the quantity demanded So as...
Consumer Surplus In almost every market situation, there will always be some individuals who are willing to pay above what they actually have to pay to satisfy their demand However, consumers pay the price offered, and no the price that they’re willing to pay, and so...