econs atar 11

factors affecting demand

1. price of related goods - complement and substitute goods

2. expectations of future prices

3. consumer income - inferior/normal goods

4. consumer preferences

factors affecting supply

1. cost of production

2. technology

3. price of other goods

4. number of suppliers

5. expectation of future prices

6. supply disruption - natural disaster

law of supply

as the price of a good rises, quantity supplied rises or as price falls, quantity supplied falls

due to profit motive

law of demand

as the price of a good rises, quantity demand decreases and vice versa

demand increases and supply decreases

banana market
- increase in health awareness and floods in queensland

price increases, quantity indeterminate

increase in supply and demand

car market
- increase in income and new car companies set up

quantity increases, price indeterminate

decrease in demand and supply

housing market
- interest rates rise and shortage in cement

quantity decreases, price indeterminate

demand decreases and supply increases

airline market
- school holidays finish and new airline launched

price decreases, quantity indeterminate

changes in demand

increase in demand - line shifts right

decrease in demand - line shifts left

what are marginal benefits?

marginal benefits are the change in total benefits as the activity increases

what are marginal costs?

marginal costs are the change in total costs as the activity increases

what causes economic growth?

economic growth is caused by an increase in one of the factors of production

what is the economic problem?

the economic problem refers to how societies, individuals and businesses allocate resources when faced with unlimited wants and needs and limited resources to satisfy them

what is the difference between microeconomics and macroeconomics?

microeconomics attempts to understand how consumers and producers make decisions.

macroeconomics is concerned with the performance of the whole economy, it sees the economic problem from society’s point of view

what purpose does an economic model serve?

an economic model is a simplified representation of economic reality, showing the relationship between certain economic variables

explain the importance of the ceteris paribus assumption

it allows economists to isolate the effects of one variable on another by holding all other relevant factors constant

what is a positive economic statement?

a positive economic statement is one that can be tested objectively. e.g what effects would increasing taxes have?

what is a normative economic statement?

a normative economic statement is one that can only be tested subjectively. e.g should we increase taxes?

what does “there is no such thing as free lunch” mean?

“no free lunch” demonstrates opportunity cost. to get one thing that we want, we usually have to give up another thing that we want

how does ppf explain concepts of opportunity cost and economic growth?

to produce more of one good, more resources must be allocated for that good, so less resources can be used to produce the other good.

why does the ppf have a negative slope?

it has a negative slope due to scarcity of resources

what factors can cause the ppf curve to shift outwards?

if factors like labour or production of capital goods increase, then the economy is able to produce goods on any point along the frontier

what is a market economy?

a market economy is where the factors of production like labour, natural resources or capital goods are owned by the people

what are characteristics of a market economy?

• individuals are allowed to profit from private ownership of business and property

• market players are free to produce, sell and purchase as they please, subject to government regulations