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The Economy: Price Theory (Law of Demand (Quantity desired) (Change in…
The Economy: Price Theory
Law of Demand
(Quantity desired)
Change in Quantity Demand
Demand and the price of a good or service are
inversely related
. This means that as one goes up, so the other goes down. Both price and demand can affect the law of demand.
Shifts on demand
A change in
income
for consumers. If you earn more money, you can afford to buy more goods.
A change in consumer
tastes
. If people do not like something, they will buy less of that good.
A change in the prices of
related goods
(complementary goods or substitutes). If the price of sugar increases then tea lovers will buy less tea. If the price of butter increases, then people will switch to margarine.
A change in consumer
expectations of future price
changes. If people anticipate an increase in the price of a certain good in the future, the tendency is to buy more of that good now.
A change in the number of
potential buyers.
Law of Supply
(Market can offer)
Change on Quantity Supplied
The higher the price of a good, the more suppliers are willing to supply that good or service.
Shift in Supply
Increase Prices of factors of production = left shift
An increase in technology = right shift
An increase in the number of suppliers = right shift
A change in prices of other goods produced, for example:
price increase in Substitute Good = left shift
price increase in Complementary good = right shift
Other
National Credit Act (NCA)
The act prevents businesses from granting easy credit to consumers who then struggle to repay the debt later.
The business must make sure that the person
can afford to repay the debt.
The businesses has to
explain all the costs and conditions
linked to the account so that the customer can decide whether they can afford the account or not.
The agreement must be in the
language of choice
of the customer and needs to be simple so the customer can understand the agreement.
Accounting Cycle
Debtors allowances
When goods are sold on credit, the debtor may decide to
return
some or all of the goods to the business. Reasons why goods are returned are because they are damaged, the size is wrong, it did not fit properly or it is the wrong colour.
When a debtor returns goods to the business it is seen as sales returned from the perspective of the business. The sales returns are called debtors allowance and will be recorded in the Debtors Allowance Journal (DAJ) as book of first entry.
The effect of sales returned is that the amount owed by the debtor to the business decreases. As the goods are returned, the value of trading stock will increase and the cost of sales will decrease.
Equilibrium: Price & Quantity
