How do consumers and producers make choices in trying to meet their economic objectives?

Demand

Supply

Market equilibrium

The law of supply
As price increases, the quantity supplied increases.

Supply curve image

Demand Curve 1_i4ythm6ACKXJaBfjo8HRWg

Relationship between an individual producer’s supply and market supply

Elasticity of Supply

Relationship between an individual consumer’s demand and
market demand

Non-price determinants of demand

Non-price determinants of supply

  • Income of the consumers

• Changes in costs of factors of production (FOPs)

• Prices of related goods (in the cases of joint and competitive supply)

• Indirect taxes and subsidies

• Future price expectations

• Changes in technology

• Number of firms

  • Tastes and preferences

Producers make choices based on the consumer's demand: whether or not the consumers would want their products

Movements along supply curve image

Shifts of the supply curve image

Movements along the demand curve main-qimg-609da9d67c9fb608c31d818b24bdc9fc

The law of demand as the price increases the demand decreases; it is in a inverse relationship.

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Shifts of the demand curve shift-in-demand-600x473

• Future price expectations

• Price of related goods (in the cases of substitutes and complements)

• Number of consumers

Degrees of PES

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Determinants of PES

Time

Mobility of factors of production

Rate at which costs increase

Elasticities of demand lol

Unused capacity

Ability to store

Market equilibrium image

Producers would try to make choices so that their supply would meet the demand of the consumers: so that they won't waste or have a shortage of supplies

Functions of the price mechanism

• Resource allocation

• Rationing

Signalling

Incentive

Consumer and producer surplus

Social/community surplus

Allocative efficiency at the competitive market equilibrium

Changes in equilibrium image

social/community surplus maximized at equilibrium

marginal benefit (MB) equals marginal cost (MC)

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Percentage Change in Quantity Demanded/ Percentage Change in Price

Determinants of PED

Number and closeness of substitutes

Degree of necessity

Time

Proportion of income spent on the good

Relationship between PED and total revenue

Importance of PED for firms and government decision-
making

Income Elasticity of Demand (YED)

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Income elastic demand (services and luxury goods) and income inelastic demand (necessities)

Significance of sign

Positive YED (normal goods) and negative YED (inferior goods)

Less than one (necessities) and greater than one (services and luxury goods)