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Unit 3: AOS 1: An introduction to microeconomics - Coggle Diagram
Unit 3: AOS 1: An introduction to microeconomics
Relative scarcity
Something that is seen as scarce when it is desired but access to it is limited
Need
A good or service vital for ones survival
Want
a good or service not necessary for ones survival
Perfect market
A market is seen as any type of arrangement between a buyer and a seller. Purchases of goods and services may be households, businesses
The market structure that forms the basis of demand and supply analysis is called
perfect market
. The conditions of a perfect market follows:
A perfect market consists of:
Large number of buyers and sellers. No individual buyer or sellers therefore has the market power to influence
It assumed product prices are homogenous, This encourages the supplier to offer the products at the lowest prices
Ease of exit and entry into the market.
Buyers and sellers have full information, meaning they new what they are buying and selling and able to compare prices
Seller wants to maximum profit
Buyers wants to maximise utility or satisfaction
Law of demand
The price of a good or service that is opposite to the quantity of demanded by customers
As the price of a good or service increases, the quantity demanded decreases
Factors of law of demand
The price of complements
( complementary products are generally consumed together.)
Consumer confidence
households general expectations about the future state of the economy
Preferences and tastes
Demand may be affected by someone's taste, attitudes, and preferences. For example, social media have influenced a diet of ones health.
Disposable income
this is the total amount that consumers have to spend on goods and services. An increase id disposable income is generally associated with an increase in the demand for goods, this will she the demand to the right, as consumers will purchase goods and services at a greater quantity at any given price
Population growth and demographic change
a growing population will need more goods and services, production of goods and services will increase due to population growing. Australia has an ageing population, this may lead do a demand of certain products such as health care and aged care
Shifts and movement of demand curve
Shift
A shift of the entire demand curve will occur when one of the other factors of demand have changed resulting in either an increase or decrease in the quantity demanded at any given price.
Movement
A movement along the curve occurs when we are analysing a change by an increase in the prices of goods and services
A movement to the left is due to the increase in prices
A movement to the right is due to the decrease of price
Law of supply
The price of a good or service is directly related to the quantity supplied by producers.
as price increases, the quantity supplied will increase
as price decreases, the quantity supplied will decrease
A higher price received for a product means an increase in revenues for the supplier
Factors of law of supply
Technology change and productivity growth
New tech will increase productivity of existing resources. productivity measures the output per unit of input. One measure of productivity is
labour productivity
, which is measured b the total output for each hour that is worked.
Changes of cost in production
Each good in the economy requires resources, known as factors of production. The position of a firm's supply curve will depend on the costs involved in making a good and service as this will influence the price the producers is willing to accept in return for the goof
Shifts and movement of supply curve
shift
A shift occurs when other factors of supply have changed and therefore price is either to increase or decrease.
A shift to the right is due to an
increase
in supply whereas a shift to the left is because of a
decrease
in supply
Movement
A movement occurs when the product price changes and causes quantity supplied to change.
A movement to the
left
(contraction) is caused by a decrease of price and the good its self.
A movement to the
right
(expansion) is caused by an increase in supply
Changes in supply and demand on equilibrium
Role of relative prices in markets
Price elasticity of demand
Factors of price elasticity of demand
Price elasticity of supply
Factors of price elasticity of supply
Meaning and significance of economic efficiency
The effect of competitive markets on the efficiency of resources allocation
Dynamic efficiency
How quickly an economic can reallocate to achieve allocative efficiency or how quickly economic entity can reallocate its resources from one activity to the other
Technical (or productive) efficiency
where productivity is at a maximum and where average costs are at a minimum
Allocative efficiency
The most efficient way of allocation of resources that are bale to maximise the needs and wants of society where nothing is wasted
Inter-temporal efficiency
the balancing of the allocation of resources between time periods and for the future
Market failures
Government intervention in the market to address market failure
Resources and key economic questions
Each economy around the world attempts to answer the three basic economic questions:
How will the good or service be produced
looks at methods of production that are employed to meet the needs and wants of society
For whom will theses goods and services be produced
- the distribution of benefits derived from production. Once the good or service is made, who gets is enjoy it?
What good or service will be produced
must decide the types of goods and services produced
Reosurces
Labour
Capital
Land or natural resource