Eco - PPC, Demand and Supply curves

what does the production possibility curves show and represent

it shows what goods the country is going to produce and in what combinations

when using the PPC what do we assume

that the country only produces 2 goods and that resources are fixed

what does any point on the PPC curve respresent?

the most efficient use of resources because all resources are being used to produce the max no. of goods

what is a market

any place/situation where buyers and sellers come together to exchange goods:

place: flee market

situation: internet (amazon)

how to we determine the demand of each person for a particular good

we study the relationship between the quantity demanded and the price of the good

what is market demand?

when for example if we had all the demand for shirts in Auckland we would have the market for demand for shirts in auckland

what is demand

quantities of a product that a person is willing and able to buy at different prices per period of time

what is the ceteris paribus rule

assuming that when we are analysing market demand, only prices change and all other factors remain the same/constant

Demand curve: as prices rise and fall what happens to the curve

there is a movement along the demand curve

what is the law of demand?

as the price of the good increase the quantity demanded will decrease and vice versa

what will cause a shift in the demand curve

a change in any demand factor besides price

what is a factor that affects demand besides price

change income:

• increased income will lead to an increase in demand. This will lead to a shift to the right of the demand curve

whats another factor affecting demand besides price and income

taste in preferences

changes in expectations about future prices

changes in population size

price of related goods

prices of substitutes

prices of complimentary goods

how does tastes and preferences affect demand

fashion statements, season changes which can lead to demand curve shifting to the left or the right

• demand for coke falls in winter

how does changes in expectation about future prices affect demand

• if there are expectations that future prices of a good may rise then people will buy more to avoid price increases - causing demand to shift outwards

• if people expect prices to fall then they will buy less how in anticipation of price decreases demand curve shifts to the left

how does changes in pop size affect demand

increase in pop - more people increases demand

demand curve shifts outwards and vice versa

how does price of related goods affect demand

butter and margarine:

if price of margerine falls then people will buy more margerine and less butter so demand curve shifts left for butter

how does price of complimentary goods affect demand

if the price of cd players rise then the demand for cd’s will fall

what is the law of supply?

at higher prices a larger quantity will be supplied with everything else being held constant

what is individual and market supply

individual: supply of products from one firm

market: supply of all firms in the industry

when there is a price change what happens to the supply curve

there is a movement along the supply curve

what are some other factors affecting supply

rising/falling cost of production

change in physical conditions (e.g drought)

taxes - increase in taxes = fall in supply - shifts to the left

subsidies = reduces cost of production - supply shifts to the right

joint supply - some production processes create more than one good

when does equilbrium price occur

when there is a balance between demand and supply - the quantity demanded by consumers is equal to the quantity supplied by firms