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Chapter 2: Demand, Supply, Elasticity and Markets - Coggle Diagram

- - - - T: Change in consumers' tastes and preferences
      - E: Change in consumer's expectations (e.g future price changes)
      - N: Change in number of consumers
      - P: Changes in price of related goods
      - I: Change in consumers' income
      - G: Government policies (e.g taxes and subsidies)
      - S: Shocks in demand
  - - - T: Technological changes
      - E: Expectation of future price changes
      - N: Change in number of producers
      - P: Change in price of related goods
      - I: Change in input prices (cost of production)
      - G: Government policies
      - S: Shocks in supply (droughts, diseases etc)
- - - - Proportion of producers' marginal cost to changes in production (cost of producing one extra unit)
      - Existence and durability of stocks (e.g fresh vs canned food)
      - Spare capacity available
      - Time (for production, for factors of production to be reallocated)
    - - PES>1: Price elastic
      - PES<1: Price inelastic
      - PES=1: Unitary price elasticity
  - - - Inferior goods (YED<0): increase in income leads to decrease in demand
      - Normal goods (YED>0): increase in income leads to increase in demand
        
        Necessities (0<YED<1): Demand is income inelastic (changes by smaller proportion)
        
        Luxury (YED>1): Demand is income elastic (changes by larger proportion)
    - - Necessity vs luxury goods (how basic an item is in consumption by households)
      - Income of consumers
  - - - Substitutes: XED>0
        
        Close substitutes: XED>1 (Coke and Pepsi)
        
        Less close substitutes: 0<XED<1 (Coke and green tea)
      - Complements: XED<0 (tea and biscuits)
      - Unrelated: XED=0
    - - Closeness of substitute/complement: closer the relation, the bigger the effect on demand of good due to price change of another
  - - - Time (habits to change, tech advancements, new substitutes etc.)
      - Degree of necessity of good
      - Existence/closeness of substitutes in consumption
      - Proportion of income spent on good
    - - |PED|>1: price elastic (proportionately larger change in Qd aft price change)
      - 0<|PED|<1: price inelastic (proportionately smaller change in Qd)
      - |PED|=1: unitary price elastic (equal proportionate change in Qd)
- - - - Effects: consumer surplus decrease, producer surplus decrease
      - Why are they set?
        
        Artificially lowering supply, to reduce consumption of certain goods which may be overconsumed and harmful to society
        
        To protect domestic industries from foreign competition (restricting quantity of foreign imports)
  - - - Direct (paid by consumers)
      - Indirect (on expenditure) (may be paid by consumers through higher prices)
        
        Specific tax (fixed amt of tax per unit good) => parallel downwards shift of supply curve
        
        Ad Valorem tax (percentage of price added) => skewed shift
    - - Direct (increases household income e.g vouchers/pensions/child benefits)
      - Indirect (on expenditure - paid directly to suppliers of G&S e.g subsidised education/healthcare/concessionary bus fares)
    - - How impacts of specific indirect taxes/subsidies are affected by PED and PES
  - - - Why are they set?
        
        Affordability and fairness => prevent exploitation by suppliers during times of shortage
        
        Anti-inflationary policy => prevent continuous increase in prices of many products, making it detrimental to econ growth and SOL
      - Effects: consumer surplus increases, producer surplus decreases+ BLACK MARKET
    - - Why are they set?
        
        Protect producers' incomes => govt buys up surplus to prevent producers' income from falling during periods of low demand
        
        Prevent wage rates from falling below a certain level, ensuring acceptable living standards
      - Effects: consumer surplus decreases, producer surplus increases (?)