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Scarcity
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The fundamental economic problem. There are not enough resources to satisfy the unlimited needs and wants of the population.
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For Example
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Time, skills, income, and people are all limited means so they cannot satisfy all of our needs and wants.
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Choice
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As a result of unlimited wants and scarce resources, consumers and producers have to make choices; their choices are influenced by their means, tastes, and values.
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For Example
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I have limited income so I can buy a pizza or a burger but not both. I have to make a choice based on what I like more or which is cheapest.
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Price Factors
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-price increase
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-price decrease
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Non-Price Factors
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-price of substitutes (eg. coke price falls, pepsi demand falls)
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-price of complements (eg. sauce price falls, pasta demand rises)
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-income
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-tastes and preferences
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Values
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Ideas/beliefs that people consider important in their lives, that influence their decisions.
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Conflict
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We do not have enough time, money, or skills to do everything that we value. Conflict may occur within our values when a hard decision needs to be made.
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Compromise
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An agreement that is reached when concessions are made, to resolve conflict. Make sure your compromise includes an aspect of both alternatives.
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Necessity Goods
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Basic goods required for survival. As income increases demand will only increase less than proportionally.
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Inferior Goods
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Goods with a limited quantity or quality. As income increases demand for inferior goods fall.
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Luxury Goods
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A good with superior features eg. higher quality or quantity. As income increases demand for luxury goods increases more than proportionally as luxury goods tend to be more expensive..
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Go on to discuss any further flow on effects and shifts in demand- refer to graph and income ratio.
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Disposable income is income earned, plus any transfer payments, minus tax. In this case, disposable income has increased/decreased due to...
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Explain the shift: As income has increased/decreased [X's] demand for product, shown as a shift in demand to the left/right (D1 to D2). This means [X] is more/less willing and able to pay for product at each and every price level.
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Go on to explain flow on effects.
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Demand
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Individual demand is defined as the quantity of a good or service an individual is willing and able to buy at a range of prices.
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↪️
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a want backed up by their ability.
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Law of Demand
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As the price of a good or service increases, the quantity demanded decreases. Vice versa ceteris paribus.
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For Example
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As the price falls/rises from $A (P1) to $B (P2) the quantity demanded of product has increased/decreased from A (Q1) to B (Q2). Vice versa ceteris paribus.
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Income Effect
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We are more willing to buy more as the cheaper price makes the good more desirable.
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We are now more able to buy more with our current level of income (income effect).
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Substitution Effect
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The good is now relatively more expensive than other goods (substitution effect).
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↪️What other things change because of a price change?
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For example, if coke is cheaper what will be the flow on effects? Unhealthier? Happier? More friends?
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The Four Flows
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-health
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-socialising and leisure
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-spending or saving
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-compliments or other things you have with the good
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Cheatography n. The art of mapping complex subjects into clear, instantly navigable reference guides.
