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EconomicsSemester 1
Definition of Economics
Economics is concerned with the study of how scarce resources are
allocated among unlimited wants
Economics is the study of how society manages its resources
Resources are allocated by the combined actions of millions of
people and firms.
Supply & demand
Factors of production
Land: earth’s natural resources (sea, minerals, trees, rivers)
Capital: man-made means of producing the final goods and services
we consume
Labor: physical and mental work
Enterprise: organize 3 other factors of production in a firm
Opportunity cost: the cost of your choice, measured in terms of the next
best alternative which you must forego.
Micro-economics: individual/industry demand, supply, costs, level of
competition.
Macro-economics: country growth, unemployment, inflation,
exchange rates
Income effect: identifies the change in consumers demand based on
incomes
Substitution effect: the decrease in sales, consumers switching to
cheaper alternatives
Demand: relationship between demand and price (law, income effect &
substitution effect). Demand curve (assumptions, axes and curves)
The demand curve
Assumptions: other things remain equal (ceteris paribus) and a given
time period
Axes: x axe (q, quantity) and y axe (p, price)
Determinants of demand
Number and price of substitute goods: price of substitute goods
increase F of the goods will increase.
Number and price of complementary goods: P of the complementary
goods increase D of the goods will decrease
Income: inferior goods: increase of income decrease of demand.
Normal/luxury goods: increase of income increase of demand
Tastes & fashion: new trends lead to the change of demand
, Expectations: expecting price will increase in the future increase
demand now
External factors: seasons, advertisements, state of economy
Movements along and shifts in the demand curve
Change in price: movement along the demand curve
Change in determinants: shift in demand curve (increase: right,
decrease left
Law of demand: Ceteris Paribus 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
Supply: relationships between supply and price (price rises, firms supply
more). The supply curve (other things remain equal, given time period,
axes, supply curves)
Determinants of supply
Cost of production: cost of production decrease supply of good
increase
Profitability pf alternative products (substitutes in supply): profit of
alternatives products increase supply of good decrease
Profitability of goods in joint supply: joint supply: can’t produce
without the other, profit joint supply increase supply of good
increase
External factors: naturel disasters, random shocks, supply chain
The aim of producers
Expectations of future price changes: expecting price increase of the
future decrease supply now
Movements along and shifts in supply curve
Change in price: movement along the supply curve
Change in any other determinant of supply: shift im supply curve
(increase: right, decrease left)
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