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ECONS TERM EXAMS: Shit you have to know or die a horrible death

Chapter 1: Resource Allocation

Want: Desire to have something Resources: Types of Resources: Lao Lao Chocolate Egg

- Land (naturally occurring resources e.g. Trees. Exhaustible & finite) - Labour (human resources) - Capital (man-made resources used to further production eg machines - Entrepreneurship (human effort. Thinking-innovation, bears risk of production) Choice: Criteria, values, scale of preference Opportunity Cost: Value of the next best alternative forgone Economic Efficiency: Getting most benefit out of the resources available

Chapter 2: Demand & Supply


PART I: Definition of demand: Desire and ability to buy a particular good in a particular market Demand: Please Pay Your School Fees 1. Price: Higher the price, lower qty demanded 2. Preferences, Fashion, Taste: Trendy, hype, up-to-date. Advertising. Changing lifestyle in the modern era. 3. Income: Personal Income. Future income (e.g: Loans, hire purchase). Income distribution. (Widely distributed, dd rises) Higher the income, higher the size of demand. 4. Substitutes & Complements: Substitutes: Close Subs: Replacements e.g Butter & Margarine Depends on degree of closeness When dd of one has decreased due to some reasons (price increase), dd of the other will increase. Complements: Perfect Pencil & Eraser, both dd increases/decreases tgt, cant live w/o each other. Imperfect Car & Tyre, car cannot w/o tyre but tyre can w/o car (other uses) 5. Future Expectations: In terms of, Economy (pessimistic, dd will fall & vice versa) Prices (if prices will increase in future, dd will rise) Trend changes (popular items, dd increase) Other important things: 1. Derived Demand: Demand X to produce Y (Wood to coffins) 2. Competitive Demand: Substitutes 3. Joint Demand: Complements, Pencil and eraser 4. Composite Demand: Demand for a good that has multi-purposes. (Rubber for hoses, erasers) PART II: Price Determination Factors affecting DEMAND: Pay Your School Fees 1. - Preferences, Fashion, Taste: Trendy, hype, up-to-date. Advertising. Changing lifestyle, modern era, modern gadgets - Income: Personal Income. Future income (e.g: Loans, hire purchase). Income distribution. (Widely distributed, dd rises) Higher the income, higher the size of demand. - Substitutes & Complements: Substitutes: Close Subs: Replacements e.g Butter & Margarine Depends on degree of closeness When dd of one has decreased due to some reasons (price increase), dd of the other will increase. Complements: Perfect Pencil & Eraser, both dd increases/decreases tgt, cant live w/o each other. Imperfect Car & Tyre, car cannot w/o tyre but tyre can w/o car (other uses)

- Future Expectations: In terms of, Economy (pessimistic, dd will fall & vice versa) Prices (if prices will increase in future, dd will rise) Trend changes (popular items, dd increase) Factors affecting SUPPLY: Good To Comply (GTC) 1. Government Policies: Indirect taxes, ss fall Subsidies, COP drop, ss rise Gestation Period: Period of time taken to grow the supplies (e.g: Crops like wheat, rice) Longer the time, lesser the qty ss. 2. Technology: Better tech, more supply (CAN ELABORATE YOURSELF AH.) E.g to use: UK retailer Sainsburys is testing new technology that it says will help improve supply chain efficiencies 3. Cost Of Production: COP increase, ss drop. Climate Conditions: Bad conditions, ss drop. E.g.: Bad conditions for crops to grow Competition: Different types of competition (YET TO KNOW WHAT IT MEANS)

CHAPTER 3: PRICE ELASTICITY


PART I: Elasticities of Demand

Dont Forget to Respect Special Friends 1. Definition: DEGREE OF RESPONSIVENESS OF : PED- dd of qty dd to change in price
YED- dd of qty dd to change in income XED- dd of qty dd of one good to change in price in another good *Basically, its about its sensitiveness to price change. 2. Formulas: Change in qty dd/ Original qty dd = Original (INSERT)/ Change in (INSERT) 3. Responses: Price Elasticity - Perfectly inelastic: No change in qty dd - Perfectly elastic: Infinite change in qty dd - Unitary elasticity: Proportionate change in qty dd. (Total Rev remains const when P changes) (THEORY, NOT APPLICABLE) *Total Rev: The amt paid by buyers and received by sellers of the good (DRAWING OF ELASTICITY CURVE) Elastic Gradient gentle Inelastic Gradient steep Income Elasticity - Positive: Normal goods, increase in Y, increase in dd dded Demand: Elastic (Luxuries), Inelastic (Neccessities), Unitary. - Negative: For INFERIOR goods; imitation goods, products w bad quality. - Zero: For very basic necessities (e.g: Salt, sugar). in income; No in qty dded Cross Elasticity - Please Shutup No Comment Zero Intelligence +ve: Substitutes: (Increase in price of hamburger make people go grill hot dogs. Price of hamburger and qty dded of hot dogs move in the same directn, so its XED is +ve) -ve: Complements: Goods used together e.g: Computers and Anti-virus software. Increase in price of computer, decrease in dd of software. Move in diff direction so it is ve. Zero XED: For independent goods/unrelated goods. Like pork and pencils 3. Signs: For PED, ignore signs. For YED and XED, take note of the signs.

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Factors affecting elasticity of demand: PED: No Supper Please Your Parents Having Dinner Today Nature of Product: Inelastic: Necessities, ex or not youll need it. E.g: Toilet rolls Elastic: Luxuries, reconsider the price if its price increase. E.g: Bungalow No. of Substitutes: Inelastic: No close substitutes, petrol. , price is same throughout. Elastic: Many substitutes. E.g: Case of butter and margarine. Portion of total expenditure: Inelastic: Minor portion spent, no need to reconsider if P Elastic: Major portion spent, need to reconsider if P Income level: Inelastic: Rich, esp the super-rich. Buy anything also ok. Elastic: Poor, esp the super-poor. If P , will need to reconsider. Price of good: Inelastic: Cheap, like erasers. P, does not affect qty dd Elastic: Expensive, like Gucci bags. P, affect qty dd. Habits: Inelastic: Habitual, like habitual smokers. P, will not affect qty dded. Elastic: Non-habitual. P will make them reconsider buying the good. Definition: Inelastic: Wide Definition, like food, drinks. We need em so P doesnt affect Elastic: Specific Definition, like maggi mee, coke. P might affect, several substs Time Period: Inelastic: Short, havent found substs. Elastic: Long, found substs. YED: No You Stupid Stupid Pig. Nature of product: Inelastic: Necessities, Y would not bring about any qty dded Elastic: Luxuries, Y would make ppl reconsider bout buying them Income level: Inelastic: Rich, esp. the super-rich. Buy anything also ok. Elastic: Poor, esp. the super-poor. Y, will need to reconsider. No. of Substitutes: Inelastic: No close substitutes, petrol. , price is same throughout. Elastic: Many substitutes. E.g.: Case of butter and margarine Storage problems: Inelastic: Have storage problems. Big and bulky e.g. Furniture. Y will Not affect qty dded as goods are bulky. Qty dd more or less stable Elastic: No storage problems. E.g.: Those small objects. Can buy as many as you want also can. Perishability: Inelastic: Perishables, Y will not affect qty dded as goods will rot easily. Qty dded is more or less stable. Elastic: Non-perishables. Y will affect, good will not spoil easily. E.g.: Electronics XED: Please Shutup No Comment Zero Intelligence +ve: Substitutes: (Increase in price of hamburger make people go grill hot dogs. Price of hamburger and qty dded of hot dogs move in the same directn, so its XED is +ve) - Depends on degree of closeness of substitutes. -ve: Complements: Goods used together e.g: Computers and Anti-virus software. Increase in price of computer, decrease in dd of software. Move in diff direction so it is ve. - Perfect complements (Pencil and Eraser) - Imperfect complements (Car & Tyre) Zero: For independent goods/unrelated goods. Like pork and pencils

Applications of the concept of Elasticity (REMEMBER, THEY JUST WANNA MAKE MORE REV.) PED: 1. Increase total revenue: - Demand is elastic Lower price of goods (luxuries, goods with several substs) More people will buy More revenue - Demand is Inelastic Raise price of goods (necessities, goods with no close substs and addictive products) People who need them will pay a higher price but still will buy More revenue - Non pricing strategies: A Man Pees SlowLy Advertising Membership Product Design (improve it!) Services provided Location of the outlets YED: 1. Increase total revenue: - More income for everyone at the end of the month Shops have sales, discounts, buy 1 get 1 free. Promote normal goods, more luxuries than necessities. Shopkeepers will increase stocks More Revenue - Neg. income elasticity Inferior goods Promote them only when there is an economic downturn (E.g. Homegrown branned products, NTUC brand) People no money can only afford such brands Still get revenue XED: 1. Increase total revenue: - +ve XEcity Promote its substitutes when one goods price increases. (E.g. Promote beef when price of chicken ) - Neg. XEcity Promote its complements when one goods price decreases (E.g. Promote accommodation when price of air fare ) Limitations: 1. Assumption of ceteris paribus (all other factors kept constant) not realistic 2. More than just three factors affecting demand 3. National value of elasticity is unrealistic, value of elasticity differs from indiv. to indiv. and varies from time to time in a indiv.

Factors affecting elasticity of supply (No Pang Sai Time) 1. Nature of product: Inelastic: Primary products (Agriculture crap)
Elastic: Manufactured products (Techie gadgets)

2. Problem of Storage: Inelastic: Difficult to store. (Big and bulky, Perishables) Production
cannot be speeded up Elastic: Easy to store More products can be stored at the same place Production can be speeded up Spare Capacity: Inelastic: Limited spare capacity. Excess goods have to be cleared before new goods can be produced. Slows down production process Elastic: Excess spare capacity More goods can be stored More goods can be produced Time Period: Inelastic: Short time period, one factor Elastic: Long run, all variable factors

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Chapter 4: Market Failure & Government Intervention


PART I: Distinction Between Private and Public Goods (Everyone Eat Rubbish & Fail Tomorrows Paper) Private: Something you can only have for your own use, e.g. toothbrush Public Good: Something that has to be shared with everyone in the public, e.g. Emergency warning system Examples Public: Defence Private: Cigarettes Excludability Public: Non-excludable, everyone is entitled to use. E.g. Everyone is entitled to enjoy defence of the country Private: Excludable. Those who dont pay cant use. E.g.. Dont pay phone bils, No phone to use. Rivalry (whether you have to compete for its use) Public: Non-rivalry, everyone enjoys the use of it at the same time. E.g. Air Private: Rivalry, once some enjoys the use of it, the other party cant. E.g. Toilet cubicles Free Ridership(got to pay?) Public: Cannot price the product, people want to enjoy it but dowan pay E.g. Who wants to pay for defence? Private: Have to pay, dont pay means you wont get to enjoy it. Total market failure Public: No private sector would wanna provide public goods. Have to be by Govt. Private: Partial Failure. Merit Goods: Underconsumed & Underproduced. Need to produce more, govt intervention Demerit Goods: Overconsumed & Overproduced. Need to control production. Govt intervention. Provision(who to provide goods/services) Public: Govt. & Philantrophic Org. E.g.: Shaw Foundation, Shaw Foundation stage @ Botanical Gardens Private: Private Sectors, but got govt. intervention to certain level

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