SS

TERMINOLOGIES :

UNIT 1 - The nature of the economic problem

1. Basic economy problem = How best to allocate scarce resources to

satisfy their unlimited needs & wants.
2. Economics = the study of how resources are allocated to satisfy the
unlimited needs & wants of Individuals, governments, and firms.
3. UNLIMITED WANTS + LIMITED RESOURCES = SCARCITY
(Shortage)
4. Economic agents =
● Individuals / households [Private sector].
● Firms (businesses which operate in the private sector of the economy)
[Private sector].
● Government [Public sector].
1. Private sector = Economic activity of private individuals and firms, to
earn profit for its owner.
2. Public sector = Economic activity directly involving government such as
the provision of state education and healthcare services, to provide a
service.
3. Goods = Physical items (tables, cars, toothpaste, and pencils).
4. Services = Non - Physical items (haircuts, bus journeys, telephone calls,
and internet access).
5. Needs = Goods and services that are essential for survival.
6. Wants = Goods and services that are not necessary for survival but are
demanded by economic agents to fulfil their desires.
7. Economic goods = Those which are limited in supply (Oil, wheat, cotton,
housing, and cars) Sumber daya yang harus di bayar
8. Free goods = Unlimited in supply (air, sea, rain water, sunlight, and
public domain webpages).

UNIT 2 - The factors of production

1. Factors of production = the resources required to produce a good or

service (Land, labour, capital, and enterprise).
2. Land = The natural resources required in the production process (Oil,
coal, water, wood, metal ores, and agricultural products) Reward - Rent.
3. Labour = The human resources required in the production process
(Skilled and Unskilled labour) Reward - Wages & Salaries.
 4. Capital = The manufactured resources required in the production
process (Machinery, tools, equipment, and vehicles) Reward - Interest.
5. Enterprise = The skills a business person requires to combine and
manage the other three factors of production successfully (Risk-taking)
Reward - Profit.
6. The mobility of factors of production = the extent to which resources can
be changed for one another in the production process.
7. Geographical mobility = the willingness and ability of a person to
relocate from one area to another for employment purposes.
Considerations
● Family ties & related commitments
● Cost of living
8. Occupational mobility = the ease with which a person is able to change
between jobs. Developing & training employees to improve their skills.

UNIT 3 - Opportunity cost

1. Opportunity cost = the cost of next opportunity forgone (given up) when
making an economic decision.

which influences the decisions made by consumers, workers,

producers, and governments.

UNIT 4 - Production possibility curve

1. Production possibility curve (PPC) = represents the maximum

combination of goods and services which can be produced in an
economy.
2. PPC diagram = graphical representation of the maximum combination
of the amounts of goods and services that can be produced in an
economy / period of time.

UNIT 5 - Microeconomics and macroeconomics

1. Microeconomics = the study of particular markets and sections of the

economy (rather than the economy as a whole) - studies the economic
behavior of individuals.
2. Macroeconomics = the study of economic behavior and decision making
in the whole economy (rather than individual segments of the economy)
- Inflation & deflation.

UNIT 6 - The role of markets in allocating resources

 1. The market system = the method of allocating scarce resources through
the market forces demand and supply.
2. Buyers = who have demand for a particular good or service.
3. Sellers = suppliers of a particular good or service.
4. Market equilibrium = when the demand for a product matches the
supply, so there is no excess demand (shortage) / excess supply
(surplus).
5. Market disequilibrium = exist when the price for a product is too high
(resulting in excess supply / surplus) or too low (resulting in excess
demand / shortage).

Unit 7 - Demand

Demand : ability customers pay a given price to buy good/service

Quantity demanded : amount of good/service demanded at each price level

Law of demand :

1.Price good/service falls = customer real income rises

2.As the price falls , a higher number customer able to pay,likely to buy the
product

Determinants of demand :

-Habits,fashion,and tastes :

Products become fashionable = leads increase in demand to them

Products become unfashionable = reduced level of demand

-Income :

higher levels of income = Costumer able to willing buy more of it.

-Substitutes and complements :

Price of one product increases = demand for its substitutes & complement
likely also to fall

-Advertising :
Marketing messages used to inform, remind and persuade customers to buy
firm products . Advertising budgets in an attempt to increase demand for the
products

-Government policies :

Rules & regulations will affect demand for certain products

-Economy :

State of economy (economy boom or recession) has huge impact on spending

patterns of the populations

Price and demand :

Curve shown downward-sloping to indicate the inverse relationship price &

quantity demanded

Movements along a demand curve :

A change in price causes movement along . Price rise causes contraction (fall
in quantity demanded by a product following increase in its price) . A reduction
in price will cause extension (increase in the quantity demanded by product
following a fall in its price)

Individual demand and market demand :

Refers aggregation of all individual demand for a product.

Conditions of demand :

Movement in demand caused by price changes . Change in other(non-price)

affects demand will cause a shift in demand .

UNIT 8 - Supply

Supply : ability of firms to provide goods & services at given price levels

Determinants of supply :

- Time : less time suppliers have to increase their output = lower supply
tends to be
- Weather : supply of certain goods & services can depend on weather
- Opportunity cost : price acts as a signal to allocate their resources to
the provision with a greater level of increases
- Taxes : imposed on supplier of a product add to the cost of production
- Innovations : more technological advances can be greater to be output
price level.innovations will tend to shift the supply curve to the right
 - Production costs : if cost raw materials & other factors of production
falls = supply curve will shift to the right
- Subsidies : financial assistance from government to help encourage
output by reducing cost of production for firms

Price and supply :

Law of supply : there is a positive relationship between price & quantity supplied product.

Movements along a supply curve :

Movements along : supply curve occurs only if the product price changes , it causes change
in quantity supplied

Extension : increase quantity supplied of product following an increase in its price

Contraction : all quantity supplied of a product following fall in its price

Individual supply and market supply :

Market supply curve : aggregation of all supply at each price level

Conditions of supply :
Change in any non price factors that affect the supply of a good or service will cause a shift.

UNIT 9 - PRICE DETERMINATION

Market equilibrium :
Quantity demand product = quantity supplied of product (no shortages/surpluses)
Equilibrium price :
Price at which demand curve for a product intersects the supply curve for the product.

Market disequilibrium :
Quantity demanded of a product unequal to quantity supplied of the product (there are
shortages/surpluses)
Excess demand :
Market price below the equilibrium price (creating shortate in the market)
Shortage :
Occurs when demand exceeds supply because the price is lower than the market
equilibrium
Surpluses :
Created when supply exceeds demand because price is higher than market equilibrium price
Excess supply :
Situation where market price above the equilibrium price, thus creating a surplus in the
market

UNIT 10 - PRICE CHANGE

Causes and consequences of price changes :

Change in non-price that affect demand or supply will cause a change in the equilibrium
price & quantity traded
UNIT 11 - PRICE ELASTICITY OF DEMAND

Price elasticity of demand (PED) : extend which demand for a product changes duo to a
change in its price.
Price inelastic demand : demand for a product is unresponsive to change in price, mainly
because lack of substituted for the product
Price elastic demand : demand for a product that is responsive to change in price .

Calculation of price elasticity of demand :

Percentage change in quantity demanded / percentage change in price

Interpreting demand curve diagrams and price elasticity of demand

-> If PED < 1 , demand is price inelastic

-> if PED > 1 , demand is relatively to changes in price
-> if PED = 0 , demand is perfectly price inelastic
-> if PED = infinity , demand is perfectly price elastic
-> if PED = 1 , demand has unitary price elasticity (when percentage change in the quantity
demanded is proportional to change the price)

Determinants of price elasticity of demand :

-substitution : greater the number & availability of close substitutes there are for good or
service = higher value PED will be
-Income : if price of a box of toothpicks / packet of salt were to double , percentage change
in price would be so insignificant to consumer
-Necessity : Products that regarded as essential tend to be relatively price inelastic because
households need goods and services, demand of luxury products is price elastic as these
not necessities for most households
-Habits, addictions , fashions , snf tastes :
If the product is highly fashionable , PED tends to be relatively price inelastic . Ppl who
extremely devoted a particular hobby are more willing to pay , even higher prices.
-Advertising & brand loyalty : effective advertising campaigns for curtain products helps shift
demand curve towards to right, reduce price elasticity of demand for the product . Customers
who loyal particular are less sensitive to changes in their price.
-Time : people need time to change their habits and behavioral norms , over time they can
adjust their demand based on more permanent price change .
-durability : if price consumer durable products , then households may decide to postpone
replacing these items due to the high prices involved in purchases
-the cost of switching : high switching costs , demand of the product less sensitive changes
in price , it tends to be price inelastic
-The breadth of definition of the product : good / service is very broadly defined , then
demand will be more price inelastic .

The relationship between price elasticity of demand & total revenue

Sales revenue / total revenue : sum of money received from sale of good/service , calculated
by formula P X Q
profit : difference between firms total revenues & total costs , calculated used formula : TR:-
TC

The significance of price elasticity of demand for decision makers :

-> helping producers to decide on their pricing strategy

-> predicting the impact on producers following change in the exchange rate
-> price discrimination
-) deciding which product to impose sales taxes on
-> determining taxation policies

UNIT 12 - PRICE ELASTICITY OF SUPPLY

Price elasticity of supply (PES) :

Measures degree of responsiveness of the quantity supplied of a product following a change
in its price

Calculating price elasticity of supply :

Percentage change in quantity supplied / percentage change in price

Interpreting supply curve diagrams and price elasticity of supply

-> if PES > 1 , supply is price elastic

-> if PES < 1, supply is price inelastic
-> if PES = 0 , supply is perfectly price inelastic
-> if PES = infinity , supply us perfectly price elastic
-> if PES = 1 , supply has unitary price elasticity
Determinants of price elasticity of supply

-> The degree of spare productive capacity :

If firm has plenty of spare capacity then can increase supply with relative ease without cost
production = relatively price elastic
-> The level of stocks :
If firm had unused raw materials, components and finished products that available to use ,
firm able to respond quickly to a change in price - means that higher level of stocks that
already for sale, more price elastic supply tends to be
Note :
Stocks : raw materials,components & finished goods used in the production process
-> The number of the producers in the industry :
More suppliers of a product there are in the industry , easier tends to be firms in increase
Their output in response to a price increase.
->The time period :
In short run,most firms not able to change their factor inputs (size of workforce,fixed amount
capital equipment they employ)
->The ease and cost of factor substitution :
If capital & labour resources occupationally , means ease of factor substitution publishing
firm makea supply highly price elastic

The significance of price elasticity of supply for decision makers :

-> creating spare capacity

-> keeping large volumes of stocks (inventories)
-> improving storage systems to prolong the shelf life of products
-> adopting or upgrading to the latest technology
-> developing and training employees to improve labour occupational mobility

UNIT 13 - MARKET ECONOMIC SYSTEM :

Economic system :
Describes the way in which the economy is organized & run , including alternative views of
how scarce resources are best allocated.

Economic agents : a government intervene in the economy

Three main types economic system :

1.market economy : relies on the market forces to demand and supply (private sector) to
allocate resources with minimal government intervention
2.Planned economy : system relies on the government (public sector) allocating resources
3.Mixed economy : combination of planned & market economic system
Advantages of the market economic system :

-efficiency : competition helps to ensure individuals and firms pay attention to what
customers want
-Freedom of choice : individuals can choose which goods and services to purchase &
careers to pursue
-incentives : motive for firms & possibility individuals to earn unlimited wealth create
incentives to work hard

Disadvantages of the market economic system (market economic suffers)

-income and wealth inequalities : rich people have far more choice & economic freedom
-environmental issues : resource depletion, pollution & climate change
-social hardship : government control means that public goods may not be provided.
Property in society might only be done through voluntary charities
-wasteful competition : competitive pressures can mean that firms use up unnecessary
resources.