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Comprehensive Notes to Macro/Microecononomics £10.49
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Comprehensive Notes to Macro/Microecononomics

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This is a guide to greatly help you understand economic topics that you do not understand. You shouldn't use these notes as a substitute from your lecture notes. These can be used as a last resort if you do not understand any topics just before a final exam

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  • January 25, 2021
  • 12
  • 2018/2019
  • Lecture notes
  • Dr wei song
  • All classes
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Introduction to Business Economics
Microeconomics
 Microeconomics is the study of how individuals, firms, governments and economies
deal with the problem of infinite wants and finite resources
Production Probability frontier
 The production possibility frontier that
shows all the possible combinations of
two goods when all resources are used.
 The opportunity cost is the benefits
foregone from the next best alternative.
 In this example, the opportunity cost of
moving production from C1 to C2 would
increase capital goods from K1 to K2.




Demand and Supply
Demand
 The law of demand states that other factors being constant (ceteris parabus), price
and quantity demanded of any good and service are inversely related.
 This means if the price of Pepsi increases, the quantity demanded of Pepsi would
fall.
 The demand curve is sloping downwards due to this law stated above
 The determinants of supply include:
o Consumers preferences/ tastes
o Price of substitutes goods
o Price of complementary goods
o Consumers income
o Population
o Price expectation
o Market size
 Movement/ Shifts in the demand curve
o A change in the price of the good causes a movement along the demand
curve
o A change in the determinants of Demand (listed above), will shift in the
demand curve
o A rightward shift denotes an increase in the Demand
o A leftward shift denotes a decrease in the Demand

Supply
 Supply = the quantity of a good that a producer is willing and able to supply onto the
market at a given time
 The law of supply states that as the price of the product rises, businesses would
expand supply to the market

, o Profit motive – when there is an increase in the demand for the good and the
price of the product increases, it would become more profitable for
businesses to increase their output
o Production and costs – as a company increases its production, production
costs tend to increase; therefore, a higher price is needed to cover these
increases in production costs. Maybe due to diminishing returns as more
factor inputs are added to the production
o Higher prices will cause a signal/incentive for new entrants to join the market,
leading to an increase in the supply of the good
 The supply curve shows the relationship between the market price and how much a
firm is willing and able to sell its goods or services.
 As mentioned before, a change in the price of the good would cause a movement
along the supply curve
 While any change to a determinant of supply will cause a shift of the supply curve
where a rightward and leftward shift would cause an increase and decrease of supply
respectively
 Determinants of supply
o Costs of production
o The profitability of alternative products – if the price of good rises, the
producers increase the quantity of the good therefore the amount of the
substitute good is likely to increase.
o The profitability of goods in joint supply – e.g. when the price of petrol
increases, the quantity of petrol would increase, but as crude oil can make
other fuels, the supply of the different fuels would also increase.
o Random shocks
o Aims of producers – if the producers anticipate a price increase, it would
cause them to either produce more of the good or withhold the good, to
benefit from the higher price.
o Price expectation
o Number of sellers – if the market is heavily concentrated, the quantity of the
product supplied will be high
o Changes in tax and subsidies – subsidies reduce production costs, therefore
allowing the producers to gain more profit. This would consequently increase/
decrease the supply if there is an increase or decrease in subsidy payments
respectively
 Market equilibrium – when the price of which the quantity demanded equals the
quantity supplied.
 The point of equilibrium would be P1 and Q1
 When the price
This would mean that the quantity demanded of
the good/service is higher than the supply,
therefore, meaning that the firm would need to
increase the price towards the equilibrium
 When the price
the quantity supplied is greater than the quantity
demanded. As a result, the response to the
increase in supply would be that the price falls.

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