Microeconomics

Microeconomics

Production Possibility frontier
1. Shows the maximum quantities of different combinations of output of 2 products
2. Shift to the right
  1. More resources or economic growth
  2. Technological change-advances
Demand
1. Demand curve
  1. Shows relationship between price and quantity
  2. Price(Y) Quantity(X)
  3. Market demand curve linear=straight line
  4. Movement along the demand curve= response to a change in price of product
2. Determinants by demand
  1. Consumer income
    1. Real disposable income=income after taxes have been deducted, state benefits added and taken account changes in price leve
    2. Normal goods=income increases, demand increases
    3. Inferior goods=income increases, demand decreases
      1. Income + demand inverse
  2. Price of other products
    1. Substitutes
      1. Competing goods
      2. Faces competition
    2. Complements
      1. Goods=joint demand
  3. Tastes&fashion
    1. Fashion trend=more demand
3. Inverse relationship between price and quantity
  1. Lower price=more demand
  2. Higher price=less demand
Supply
1. Supply curve
  1. Relationship between price and quantity supplied
2. Determinants of supply
3. Price increases=Quantity supplied increases
  1. Market price of a product falls=decrease in quantity=less likely to make a profit
Market equilibrium
Changes in demand/supply
Factors of production
Consumer/Producer surplus
1. Consumer surplus=Demand
  1. Extra amount a consumer is willing to pay for a product above the price that is actually paid
2. Producer surplus=Supply
  1. Difference between the price a producer is willing to accept and what is actually paid

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