Scarcity- Scarcity is the central problem of economics.

It is the situation in which our 

limited resources available are unable to satisfy the unlimited wants we have. 
 
Opportunity cost- Opportunity cost refers to the next best alternative forgone when making 
a choice. 
 
PPC- A Production Possibility Curve is a curve showing all possible combinations of two 
goods that can be produced by an economy assuming all the resources are fully and 
efficiently utilised, given a fixed quantity and level of technology 
 
Factors shifting PPC - 1. Quantity of factors of production 
2. Quality of factors of production 
3. State of technology 
 
Market- A market describes the process whereby goods, services and factors of production 
are bought and sold.  
 
Demand- Demand is the amount of good or service that consumers are willing and able to 
buy at various prices, over a particular period of time, ceteris paribus.  
 
The Law of demand states that there is an inverse relationship between the price and the 
quantity demanded of a good, ceteris paribus. 
 
Inverse relationship because of the law of diminishing marginal utility - when u consume 
more of a product, your desire for additional units of it will decline. 
 
Non-Price Determinants of Demand (EGYPT WIPE) 
1. E​xpectations of future Prices  
2. G​overnment regulation  
3. Income of households ​(Y) 
4. P​rices of related goods – substitutes/complements (competitive/joint demand)  
5. T​aste and preference 
6. W​eather  
7. ​I​nterest rate  
8. P​opulation changes  
9. E​xchange rates 
 
 
 
Supply- Supply is the quantity of a good or service that producers are willing and able to 
sell at various prices, over a particular period of time, ceteris paribus.  
 
The Law of Supply states that there is a direct relationship between the price and the 
quantity supplied of a good, ceteris paribus.  

 
Non-Price Determinants of Supply (WETPIGS) 
1. W​eather  
2. E​xpectation of future price level  
3. T​echnological changes  
4. P​rice of related goods – competitive/joint supply  
5. I​nput costs  
6. G​overnment policies (Taxes/Subsidies)  
7. N​umber of sellers  
 
 
Change in both Demand and Supply- Will result in uncertainty. There is uncertainty as it 
depend on whether the demand or supply curve shifts more 
 
Price elasticity of demand (PED) measures the degree of responsiveness of the quantity 
demanded for a particular good due to a change in its price, ceteris paribus.  
 
PED = % change in the Quantity demanded / % change in the price  
 
The sign for PED is always negative based on the law of demand which states that there is 
an inverse relationship between the price and quantity demanded for a particular good.  
 
0<PED<1 This means that a change in price has caused a less than proportionate change in 
the quantity demanded for a certain good.​ E.g. The P of nike shoes increasing by 10% 
caused the quantity demanded for nike shoes to fall by only 8%. % fall in Qd (8%)< % 
rise in P (10%) 
 
1<PED<∞ This means that the % change in price has caused a more than proportionate 
change in the qty demanded for a particular good.​ E.g. The P of nike shoes increasing by 
10% caused the quantity demanded for nike shoes to fall by 12%. % change in Qd (12%) 
> % change in P (10%) 
Determinants of PED (PANT) 
1. P​roportion of income spent 
2. A​vailability of substitutes 
3. N​eed for the good (e.g. addictiveness, basic necessities) 
4. T​ime Period  

Price elasticity of supply measures the degree of responsiveness of the quantity supplied 
for a particular good due to a change in its price, ceteris paribus. 
 
PED = % change in the Quantity supplied / % change in the price  
 
The sign for PES is always positive based on the law of supply which states that there is a 
direct relationship between the price and quantity supplied for a particular good.  
 
0<PES<1 This means that the % change in price has caused a less than proportionate change 
in the quantity supplied for a certain good. ​E.g. The P of nike shoes increasing by 10% 
caused the quantity supplied for nike shoes to rise by only 8%. % change in Qs (8%) < % 
change in P (10%)  
 
1<PES<∞ This means that the % change in price has caused a more than proportionate 
change in the quantity supplied for a particular good. ​E.g. The P of nike shoes increasing 
by 10% caused the quantity supplied for nike shoes to rise by 12%. % change in Qs 
(12%) > % change in P (10%) 
 
Determinants of PES (PESS) 
1. Length of ​P​roduction   
2. E​ase of getting (availability + mobility) resources 
3. S​pare Capacity (availability of)  
4. S​tocks (availability of) 
 
Total revenue refers to the total receipts or total earnings received by the producers from 
the sales of its goods or services. 
 
TR= (Price of good) x (Quantity of good) 
 
When PED >1 (price elastic), producers should lower the price of the good to increase TR 
 
When PED<1 (price inelastic), producers should increase the price to increase TR 
 
 
Price control- Price control refers to the selling of prices by the government so that they are 
unable to adjust their eqm level as determined by demand and supply. Government can 
control the price of good either by settling a price ceiling or a price floor. 
 
Price ceiling- A price ceiling (maximum price) is the highest permissible price that the 
producer can legally charge. This means the price is not allowed to rise above the level set 
but it is allowed to fall below it. 
It aims to protect the consumers of the good- price set below the equilibrium price. However, 
leads to shortage. 
To resolve this shortage, government will ration goods through non-price rationing 
schemes like coupons- leads to black market 
Government can increase the supply of the good by offering subsidies or tax reliefs, direct 
provision, release some of the stocks of the goods to the market. Leads to opportunity costs 
 
Price floor- Price floor is the minimum price set by the government above the eqm price, 
which is deemed too low. 
Price floor helps to protect farmer’s incomes or workers in the form of min wages. However 
leads to surplus. If the gov does not address the surplus, those who are not able to sell at the 
higher price are worse off.  
Gov can buy surplus- opportunity cost 
Increased gov spending result in taxpayers eventually bearing the burden of this policy as 
they pay for it in the form of increased taxes.  
Profit-maximising producers may decide to overproduce the protected product to earn 
from the higher government-guaranteed revenues, instead of producing other goods that 
may be more efficient at producing. This not only increases the supply of the 
price-controlled good and enlarges the surpluses already present, but also results in the 
misallocation of resources. 
 
Quality control- Quota 
Government may also employ quantity controls as a measure to control the quantity of 
goods and services exchanged in a market if the eqm output is deemed too high. 
 
Indirect taxes- refers to taxes levied on spending. 
Specific tax- an indirect tax of a fixed sum per unit sold- causes a parallel left shift in the 
supply curve. 
Ad valorem tax- an indirect tax of a certain percentage of the valueof the good(eg. GST). It 
leads to a pivotal left shift in the supply curve. 
 
 
 
PED<1 (price inelastic)= larger consumer burden 
PED>1 (price elastic)= smaller consumer burden 
 
PES<1(price inelastic)=smaller consumer burden 
PES>1 (price elastic)= larger consumer burden 
 
Subsidy- A subsidy will cause the cost of production to fall and the supply of a good to rise. 
Causes a supply curve to shift right. 
 
PED<1 (price inelastic)= more subsidy benefit enjoyed by the consumers  
PED>1 (price elastic)= less subsidy benefit enjoyed by the consumers  
 
PES<1(price inelastic)= less subsidy benefit enjoyed by the consumers  
PES>1 (price elastic)= more subsidy benefit enjoyed by the consumers