Knowledge Organiser

The quantity of a good or service that consumers are willing and able to purchase at any given price in a given time period.

The demand that an individual will have for goods and services at any given price.

The sum of of the individual demand of all the consumers in the market.

The consumer has the ability to pay for the product

When demand for one product is driven by the demand for another product.

Ceteris paribus, there is an inverse (negative) relationship between quantity demanded and the price of a good or service.

Latin for "holding other things constant". Meaning that when we change one variable, we assume all other variables are the same as they were.

The utility you get from consuming the next unit.

As we consume more of a product, the utility we get from consuming the next product deceases.

A higher price means the product now has a higher opportunity cost (in terms of other products). Consumers would now rather purchase these other products and buy less of the product that increased in price. (Even if they had a higher income, they would still prefer the other products)

A higher price means the consumers' real income is lower. They feel poorer, so they buy less of the product.

An increase in price

A decrease in price

-Income -Price of Complements -Price of Substitutes -Tastes and Fashion

Goods which are used together. e.g. tennis balls and tennis rackets

Goods that can be used as a replacement for each other because they serve the same purpose e.g. Coke and Pepsi

Demand curve shifts right

Demand curve shifts left

Demand curve shifts right

Demand curve shifts left

Shift right

No change in Demand curve. Quantity Demanded decreases (contraction/ movement along Demand Curve)

No change in Demand curve. Quantity Demanded increases (extension/ movement along Demand Curve)

A firm is a business It seeks to maximise profit

Supply is the quantity of a good or service that producers are willing and able to supply onto the market at any given price in a given time period.

The cost to a business of producing one more unit of production

Because of diminishing returns to the variable factor. "Too many cooks spoil the broth" As you increase output (in the short run) workers get in each other's way and become less productive, increasing the cost of producing the next unit.

-Selling at higher prices means more profit -Higher prices make up for increased marginal cost

A decrease in price

An increase in price

→ Technology → Expectations → Number of Sellers → Prices of other Goods → Input prices → Taxes and Subsidies

Shift right (More will be produced at any given price)

Shift right (More will be produced at any given price)

Shift left (Less will be produced at any given price)

Shift up Whatever price the producer was willing to sell at is now effectively higher, as tax must be added.

Shift down Whatever the price the producer was willing to sell at is now effectively lower, because the government is paying for production of the product.

Goods with constant marginal cost i.e. good where you can increase production without seeing bottlenecks in production (e.g. Spotify)

Firms can increase production and their marginal cost doesn't increase (e.g. Spotify)

Goods which are in fixed supply i.e. you cannot increase supply e.g. Picasso paintings, concert seats, pumpkins (in the short term)

-Economic Growth -Increased productivity of the worker. -Increased demand for the product the worker produces.

-Recession -Decreased demand for the product the worker produces

-Labour substitutability (for capital) -% of firm's cost -Time period -Necessity of the work

Elastic

Inelastic

Elastic

Inelastic

Firms (businesses)

Households (individuals)

Because a higher wage will incentivise workers to work.

Because workers have earned so much that they want to trade extra work for extra leisure (income effect > substitution effect)

-Availability of substitute labour -Time frame -Training required

£11.44 per hour

Trade unions typically restrict supply of labour (by insisting firms hire from the union), shifting labour supply curve left and pushing up wages.

Occupational licenses restrict the number of workers available to do the job, shifting labour supply curve left and pushing up wages.

-If labour is more expensive, employers want less of it. -Workers are paid for the revenue they can make for the firm. -Workers who are not skilled enough to make revenue above the minimum wage will not have a job.

Many firms have bargaining power over their workers. They under-pay their workers in a free market. Minimum wages mean they correct this, and may hire more workers as a result.

Because these jobs are necessary, so a higher minimum wage just means that firms keep the same employment and pay more.

Because if a firm provides workers with capital equipment to increase their productivity, there is no need to make them unemployed.

More generous welfare payments decreases the incentive to work, shifting labour supply curve to the left.

More workers in the economy will shift labour supply curve to the right, decreasing wages.