Economics Basics

Demonstrate understanding of consumer choices, using scarcity and/or demand. 90983

Achievement with Merit To 'demonstrate in-depth understanding' would typically involve: Providing a sound explanation of consumer choices related to scarcity Providing a sound explanation of choices a consumer makes in response to a change in a price or non-price factor affecting demand Explaining the flow-on effects for the consumer Using the demand model to support explanations Question One: Consumer Choice Wants Scarcity Limited Means Choice Opportunity Cost Values & Conflicts Question Two: Law of Demand Demand Scheule Demand Curve Law of Demand Reasons of Outcome Flow-On Effects Question Three: Price of Other Goods and Services Economic Terms Substitute & Complimentary Goods Sketch Graphs Flow-On Effects Question Four: Effects of Change in Income Rise and Fall Income Inferior, Luxury goods- economic terms Refer to graphs Flow-On Effects

Key Terms Demand: The quantity of a good or service that a consumer is willing and able to buy at a reasonable price.Law of Demand: States that as price for a good or service increases, demand for it will decrease, ceteris paribus.Ceteris Paribus: Assuming no other factor changesConsumer: An individual household that demands a good or serviceConsumer Choices: Economic decision a consumer makes between alternatives as a result of scarcity.Resources: Those things that are available to us to help us achieve our needs and wants.Means: Personal resources such as time, skills and money, including those of family/community.Limited Means: Restricted personal resources such as time, timeUnlimited Wants: Endless amount of wanted goods or services that the consumer is either unable or not willing to buyScarcity: Occurs when unlimited wants exceed limited MeansNeeds: Things that we have in order to survive, such as food & water, shelter and warmth.Wants: Things that we desire but can live without.Opportunity Cost: The next best alternative forgone. What we give up (forgo) when a choice is made.Values: Ideas morals or beliefs which a person, group and/or society, consider to be important and they live by them.

Effects of Price Changes on Demand Notes: P1 & P2, Q1 & Q2 show the prices and quantity demanded before and after the change Dotted lines show each of the price and quantity demanded combinations Use arrows to show the direction of the change in price and quantity demanded A change in price results in a shift along the demand curve to a new point.

Non-Price factors affecting demand The law of demand states that, at higher prices, the amount that a consumer will purchase will decrease, ceteris paribus. If some factor other than price changes, then the amount the consumer would be willing and able to buy at each price may change; that is, the whole demand curve could shift.Notes: Arrows show directions of shifts, (left or right). New demand curve is labelled 'D' If the curve shifts to the left (i.e. less is demand at each price), then there would be a 'decrease in demand' What will cause a shift of the demand curve? Tastes and Preferences: A persons tastes change over time as new interest arise and old ones fade. Income: Changes in income affect the amount of a good or service