Positive Statement of fact which can be easily proven
Normative Statement of opinion
We are all trying to pass of normative statements as positive
Production possibility curve
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,Lecture 2
As the price for a good rises, the quantity supplied rises and the quantity demanded falls. As the price falls, the quantity
supplied falls and the quantity demanded rises.
Demand
The law of demand:
Ceteris Paribus (all other things staying the same), the higher the price of a good or service, the less will be the quantity
demanded; and the lower the price of a good or service, the greater will be the quantity demanded.
↑P ↓D
↓P ↑D
Price is the only variable that changes ON the demand curve The rest will shift the curve
Market economy market decides what is on the market
Determinant of Demand (BITER):
- Buyers (Number of buyers change)
- Income (Y) Effect
If price goes up buying power goes down
If price goes down buying power goes up
- Taste (Changes in preference)
- Expectations (price to fall/ price to rise)
- Related goods Prices of other goods/ services
No relationship
Substitute goods ( If price of product goes up, demand for substitute goes up)
Complementary goods ( If the price of product goes up, demand for complementary goes down)
Income levels Inferior goods, normal goods, luxury goods
Demand = a-bP (a= cross on the axes, b= point on the graph)
Increase in Demand: Decrease in Demand:
, Supply
The law of supply
The higher the price of a good the greater will be the quantity supplied and the lower the price, the less will be the
quantity supplied
Determinants of Supply (STONER):
- Subsidies (Right shift) and Taxes (left shift)
- Technology changesincreases companies to supply
- Other goods prices (Move to substitute)
- Number of Sellers (How many firms are in the market)
- Expectations (Future prices and economic conditions)
- Resources cost Cost of production (Move to substitute)
Increase in Supply: Decrease in Supply:
Supply= c+dP (c= cross on the axes d= point on
the graph) Price of the good
↑P ↑S
↓P ↓S
Supply and Demand Surplus/ Shortage
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