Basic economic problem : Is scarcity . It is when there af unlimited wants but limited resources to satisfy the wants ~ opportunity Cost : next best alternative forgone. Eg : with apples and oranges) oranges are bought then apples will be the opportunity cost. Helps in decision making to deal with scarcity. As best option would be the: FZ one with the lowest opportunity cost, as it has the least sacrifice Production possibility curve ( PPC Capital goods maximum a country can produc of a combination of 2 goo - with its existing resources Section 1 iy Resources / factors of production Land- Anything available above, on or below the surface of the earth/ naturally available resources. Eg : trees, coal, water. Payment - Rent Labour - Mental and physical efforts of workers in a business. Eg : Skilled worker like doctors and unskilled workers like cleaners Payment- Salaries(monthly) Wages(daily/ weekly) —- a rime rate Piece rate Payment based on Payment based on king hrs goods made Capital de resources. Eg : machines, cars, bridges, road. é cost of borrowing and return on saving ) Ro a ~ Enterprise - The risk taking and decision making of merging all other factors of production for a business purpose . Eg: school, hospital. Payment - Interest rate Payment - Profit Capital Goods Cc Explain economic concepts through ppc? Consumer goods 4, Resource Efficiency : A and B are efficient levels as maximum resources are used 4 Cis inefficient as under utilisation of resources occur 2. Scarcity: At D scarcity is experienced as resources are not available to produce at that level. 3. Opportunity cost : Opportunity cost of moving from A to B is 40 capital goodsCapital Shift of the PPC ( new PPC ) Goods Change in the quantity oF quality of resources If productive capacity increases then PPC shift to the RIGHT EG Discovery of new resources Increase in population’ Increase in training/education Improvements in technology Consumer goods If productive capacity decreases them PPC shift to the LEFT EG : Depletion of oll reserves Emigration of people Natural calamities/ Virus/ lockdown increased death rate / reduce enterprise activity Capital Goods Movement of PPC ( no new PPC ) No change in the quantity or quality ‘ J Of resources. Either underutilisation roductive capacity does not change Or more utilisation of existing resources Ato B : Producing more consumer goods And less capital goods B to A : Producing more capital goods and less consumer goods B to C : underutilising resources. Increase in unemployment Cto A : utilising more resources : Becoming more productive Consumer goods Market economy Planned economy Mixed economy Command economy Communist economy Free market economy Resources are allocated by —_Resources are allocate Both privelelen The private sector Government/ Public public sector decides No government intervention Complete government control. | Government intervenes Only when needed Profit maximisation is the Affordable goods and Objective Welfare are the objectives Both objectives Price and quantity decisions — Government decides prices and Market forces decide Are made based on price quantity price and quantity Mechanism (Market forces however government Of demand and supply ) may intervene when re needed ‘onsumers decide what is Government decides what to to be made ( consumer Maa Private and public Sovereignty) sector businesses decide what to Section 2 mie @Market economy Planned economy Mixed economy Command economy Communist economy Free market economy Pros : both Pros : Encouraging for businesses Since they can earn profit And less/ no government Intervention Efficient allocation of resources Since u make what consumers Want More economic growth/ GDP. Cons : __ Monopoly forms and exploit customers More production of demerit Goods and less of merit goods Production of public goods by the government) Demand : The willingness and ability to buy a product at a certain price and a certain period of time Factors affecting demand 1) Price of the product Movement of demand 2) Income levels 3) Tastes and preferences 4) Population levels 5) Advertisements 6) Direct tax ( tax charged on Incomes / earnings ) product) 7) Price of a substitute good ( a product that can be bought instead of another 8) Price of complementary Product) 900d ( a product that is bought along with another Shift in the demand curve ( non price factors )Price of the Product Negative/ Inverse relation between price and quantity demanded PT oes PL Ds Movement of Demand (same demand curve) | Change in the price oT r of the product Risen / Extended or Fallen / Contracted Q. Q Quantity of the product <— Shift in the demand ( new demand curve ) Changes in non price factors Increase in demand ( RIGHT ) Decrease in demand ( LEFT ) Pi Price D 1 -— Quantity Quantity @ oe TS ica BOG Supply : The willingness and ability to sell a product at a certain price and a given period of time Factors affecting supply 1) Price of the product Movement of supply ( price factor ) 2) cost of resources/ production 3) Availability of resources 4) Wars / Natural calamities 5) Infrastructure 6) Indirect taxes Tax charged on the sale of goods and services 7) Weather conditions 8) Technology used 9) Subsidies Financial help given to businesses by the government Shift of the supply ( non price factors ) Price: S Positively / Directly Related Bevement of supply 1 f , Si (Same supply curve ply vp el Ss i Change in price of the product Rise/ Extend Fall / Contracts a Quantity Shift in the Supply ( new supply curve ) Change in th e non price factors Increase in supply ( Right ) Decrease in supply ( Left ) Price Price| S| > \ a= s P P Q—> Q) Quantity Gl Quantity © a e —_ i.Market forces / Price lechanism : interst 9 ection of demand and supply curves Price > Qe Quantity E : Equilibrium point (point where demand =supply) Pe : Equilibrium Price (Price at which demand = supply) Ideal Price Qd : Equilibrium Quantity (Quantity at which demand = supply) Ideal Quantity Optimum usage of resources s 2 at os amt Market Diagrams/ Demand and Supply Diagrams : S Price Q, Q Quantity Increase in direct tax Prices fall , : Demand decreased ( shifts to the left ) As income reduces Supply Contr: cted Quantity traded falls Siac. Bo DO Pi MDS ncaa, Market diagram for fall in price of the product Price 5 t vb fl as @ demand / Shortage Quantity Prices falls so Demand extends as product Supply contracts as | Resulting in 2 more affordable nue is earned by businessesDemand Willingness and ability to period of time Shift ( new curve ) buy a product at a certain price at a given: Movement ( no new curve ) I / e increase oe s Contracted / expanded Trending aa Al Price of the product | a fe Pr Prices of substitutes Prices of complements D1 Incomes ° Supply : willingne ertain price period of time Shift ( new curve ) Movement ( no new curve ) Increase / decrease Extension/ contraction Cost of production ~ Ss Price of the product Indirect taxes Technology iu Subsidies Te Availability of resources Weather conditions Price elasticity of demand Measures the level of responsiveness of change in quantity demanded to a change in the price of a product Perfectly elastic Q5 Relatively elastic> | Unitary ela: Quantity keeps changing Change in price is even if price stays same equal to change in = than chan eel demand ine Oo clatively inelastic < [ ie Change in demand is more Perfectly inela wit a change in price , Joes not change : D a PED =_% change in quantity demanded = %e change In price P= 120. D= 80 166 Pi= 100. Di= 100 intity demanded Change in quantity less than change in price =o PE eED>| RE Zk D> AAF ge! OP TAD vE P£0<| AP>AD Pren=O TL