Summary Micro-Economics [ECO20A] 2nd year University Notes

MICRO-ECONOMICS 11
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, DEMAND CURVE Linked to CONSUMERS
FLOW concept
NOT wants, needs or requests

 Relationship between the quantity of a good that consumers are Movement ALONG the demand curve
willing to buy and the price of the good

 quantities of a good that prospective buyers are willing and able to
purchase during a certain period ∆ price of product
[relates to plans of households, firms and other participants in the
economy] = changes the QUANTITY demanded
**always remember to draw
LAW OF DEMAND ↑ price ↓ demand arrows**

Other things being equal (ceteris paribus), the HIGHER THE PRICE OF A
GOOD, the LOWER THE QUANTITY DEMANDED

 NEGATIVE RELATIONSHIP (price & demand)
SHIFT of the demand curve

Qd = f (Px; Pg; Y; T; N) ∆ in elements
DETERMINERS Z ∆ in price of RELATED GOODS
Z ∆ in CONSUMER INCOME
Z Price of product (Px) Z ∆ in TASTE
Z Price of related goods (Pg) Z ∆ in HOUSEHOLD SIZE
Z Income of consumers (Y)
= change in DEMAND for product
Z Taste / preference of goods
(T) **always remember to draw
Z Size of household (N) arrows**

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, SUPPLY CURVE Linked to PRODUCERS
FLOW concept


 Relationship between the quantity of a good that producers are
Movement ALONG the supply curve
willing to sell and the price of the good

 quantities of a good or service that producers plan to sell at each
possible price during a certain period ∆ price of product
[planned quantities (that producers or sellers plan to sell at each price]
= changes the QUANTITY supplied
LAW OF SUPPLY ↑ price ↑ supply
**always remember to draw
Other things being equal (ceteris paribus), the HIGHER THE PRICE OF A
arrows**
GOOD, the HIGHER THE QUANTITY SUPPLIED

 POSITIVE RELATIONSHIP (price & supply)

INDIVIDUAL

Qs = f (Px; Pg; Pf; Pe;Ty) SHIFT of the supply curve
Z Price of product / input
Z
Z
Price of alternatives
Price of factors of production ∆ in elements
Z Expected future prices
Z State of technology [improved production techniques
decrease cost of production enabling suppliers to produce
Z ∆ in price of ALTERNATIVES
larger quantities] Z ∆ in PRODUCTION ELEMENTS
MARKET
Z ∆ in EXPECTED PRICES
Qs = f (Px; Pg; Pf; Pe; Ty; N) Z ∆ in TECHNOLOGY
Z Price of product / input
Z Price of alternatives / joint products Z ∆ in NUMBER OF SUPPLIERS
Z Price of factors of production
Z Expected future prices = change in ACTUAL SUPPLY
Z Technology
Z Number of suppliers of the product **always remember to draw
Z Government policy
Z Climate & disasters arrows**
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, COMPLEMENTARY GOODS SUPLEMENTARY GOODS
A COMPLEMENT → GOODS THAT TEND TO BE USED JOINTLY TO A SUBSTITUTE → A GOOD THAT CAN BE USED IN PLACE OF ANOTHER
SATISFY A WANT GOOD TO SATISFY A CERTAIN WANT


RULE OF COMPLEMENTARY GOODS RULE OF SUPLEMENTARY GOODS

↑ PRICE (Good A) ↓ DEMAND (Good B) [decrease in demand] ↑ PRICE (Good A) ↑ DEMAND (Good B) [increase in demand]

↑ PRICE (Good A) = LEFTWARDS SHIFT OF THE DEMAND CURVE ↑ PRICE (Good A) = RIGHTWARD SHIFT OF THE DEMAND CURVE

↓ PRICE (Good A) ↑ DEMAND (Good B) [decrease in demand]

↓ PRICE (Good A) = RIGHTWARDS SHIFT OF THE DEMAND CURVE




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