Price Mechanism and its applications
Inter-related markets
Joint Supply
Substitutes
Complements
Competitive supply
Role of price mechanisms in the economy
Price mechanism
Signalling function of prices
Incentive function of prices
Rationing function of prices
1) Initial equilibrium
2)Identify and explain the shifts
3) Make a judgement on the relative magnitude of the shifts
4) Identify the shortage and surplus
5) Upward and Downwards pressure in price
6) Identify whether price or quantity is indeterminate + new equilibrium
Factors affecting change in demand
Factors affecting change in supply
Changes in income
Changes in price of related goods
Changes in tastes and preferences
Consumer Expectations of future price and future income changes
Government Legislation
Cost of production
Changes in cost of factor input
Changes in state of technology
Changes in Government policies
Sellers' expectations of future prices
Change in number of sellers
Changes resulting from natural or abnormal circumstances
Changes in price related goods
Competitive supply
Joint supply
The increase in supply results in the increase in demand of the other
The decrease in supply results in the increase in demand of the other
The increase in demand results in the increase of supply of the other
The increase in demand results in the decrease of supply of the other