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Chapter 2a - Coggle Diagram
Chapter 2a
Demand
defined as the quantity of a well-defined commodity that consumers are both willing and able to buy at a given price during a given period of time, ceteris paribus
can be expressed as equation, in the form of a table and in diagrammatic form
demand curve shows the relationship between the price and quantity demanded
demand curve is downward slopping from left to right
Basis for a downward sloping demand curve: law of diminishing utility
states that beyond a certain point of consumption, as more and more units of a good or service are consumed, the additional utility a consumer derives from consuming successive units decreases.
When there is a change in the amount of a good/service by consumers due to a change in price of the good/service, economists say that there has been a change in quantity demanded of the good/service. It is illustrated by a movement along the demand curve of the good/service
When there is a change in the amount demanded of a good/service by consumers due to factors not relating to the price of the good/service, economists sat that there has been a change in demand. It is illustrated by a shift in the demand curve of the good/service.
non price determinants of demand
- change in consumer's income
- change in the price of related goods
- change in consumers' expectation
- changes in consumers' taste and preferences
- government policies
- changes in the number or composition of consumers
complements in consumption are goods used in conjunction with one another in the satisfaction of a particular purpose
substitutes in consumption are goods that can be used in place of one another for the satisfaction of a particular purpose
law of demand states that in a given time period, the quantity demanded of a product is inversely related to its price, ceteris paribus
Supply
defined as the quantity of a well-defined commodity that producers are both willing and able to supply at a given price during a given period of time, ceteris paribus.
can be expressed as equation, in the form of a table and in diagrammatic form
law of supply states that in a given time period, the quantity supplied of a product is directly related to its price, ceteris paribus.
What explains the law of supply?
Higher prices increase the ability to supply a good/service. The law of increasing opportunity cost states that as more of a particular good is produced, the opportunity cost of additional output becomes greater - the marginal cost of production increases.
When there is a change in the amount supplied of a good/service by producers due to a change in price of the good/service, economists say that there was a change in quantity supplied of the good/service. It is illustrated by a movement along the supply curve of the good/service
When there is a change in the amount supplied of a good/service by producers due to factors not relating to the price of the good/service, economists say that there has been a change in supply. It is illustrated by a shift in the supply curve of the good/service
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- changes in the costs of relavant resources
- changes in the price of related goods
- nature, 'random shocks' and other unpredictable events
- expectation of future price changes
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- government policy - indirect taxes and indirect subsidies
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Consumer surplus
the difference between of how much consumers in the market are prepared to pay and how much they actually pay.
producer surplus
the difference between the price that producers in the market are prepared to sell their good or service and how much they actually receive.