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Section 2 - Competitive markets - Coggle Diagram
Section 2 - Competitive markets
Consumer surplus
When consumer pays less for a good that than the amount they're prepared to pay for it
Difference between price consumer is willing to pay and the price they actually pay (eqilibrium price)
Area below the demand curve and above the equilibrium price line
Producer surplus
Producer receives mroe for a product than they're willing to accept
Difference between price a producer is willing to supply a good at and the price that they actually receive (equilibrium price)
Area above the supply curve, below to price line
Subsidies
Encourage demand for a good
Money paid by the government to the producer to make the good cheaper
Encourage increased production and a fall in price which leads to an increase in demand
Consumer gain - fall in price, they pay less for the good
Producer gain - receive extra revenue from the government that they can keep
A more inelastic demand curve is greater for the consumer's gain
A more elastic demand curve is better for the producer's gain
Indirect tax
Placed on goods to reduce the demand for it as it raises the price
Consumer burden - rise in price, they have to pay more
Producer burden - revenue lost to the government
A more price inelastic demand curve leads to a greater burden for the consumer
A more price elastic demand curve leads to a greater burden for the producer
Agricultural products
Commodity - can be swaped with another good of the same type without a noticeable difference
Inelastic PED as food is a necessity, and supply as its had to store products
Effects of price instability
Reduce/ prevent investment due to uncertainties about returns
There'll be period of low/ high income due to different seasons, can lead to seasonal unemployment
Highr food prices lead to less income to spend on other goods, which can cause a recessions
Changes in income
Demand for agricultural products is income inelastic as you need food to survive
Income increases lead to changes in the quality of agricultural products demanded
Long run prices
Technological improvements may lead to an increase in the supply of crops. Increased efficiency causes supply curve to shift right, and price falls
Factors affecting long run demand cause demand curves to shift left/ right and change the price
Oil
Price
Increase in price of oil can cause inflation as price of many goods increases
Demand is price inelastic as its so widely used
Supply is price inelastic as its hard to increase the supply of oil
Demand
Recession - demand falls as oil is used in most economic activity
Value of USD - low value means more crude oil can be purscaed by people using other currencies
Demand for products made from crude oil - increases the derived demand for oil
Living standards improving leads to higher oil consumption
Supply
Short run
Wars decrease the suppy causing an increase in price
Costs may increase for firms, who then increase their prices to maintain profits
Organisation of Petrolium Exporting countries (OPEC) has a major influence on supply of oil
Long run
Size of remaining oil reserves- larger supplies mean supply is greater in the long run
Cost of extraction - Some reserves are too expensive to extract from
Efficiency and cost of technology - cheaper and more efficienct technology leads to a lower cost of supply
Housing
Investment
Houses tend to rise in value over time
Fall in prices caues negative equity - when the value of a mortgage is greater than the market value
Supply
Supply of new build depends on costs of building them
Increased supply of houses causes a decrease in the price
Price
Areas with high unemployment lead to lower prices and lower demand
High consumer confidence increases demand
Inelastic
No substitues - demand is inelastic
Building takes time and is restricted by materials and refulation so supply is inelastic
Since supply can't increase in short run, an increase in demand makes prices rise rapidly
Kock on effects
Rise in house prices create more construction jobs
Higher house prices increase owner confidence and can encourage spending and investment
Increased house sales ecourages spending on household goods
Transport
Derived demand
Results from demand for other goods and services
Elastic
Increases in real incomes increase the demand for transport, income elasticity is elastic
Increase in prices lead to less leisure traveling, so price elastic
Car travel
Substitutes - increase in the cost of using a car leads to more public transport
Supply of roads is fixed in short run, which can lead to excess demand