Constant / Factors affecting supply curve:

→ indirect taxes = supply down

→ subsidies = supply up
→ cost of production= supply down
→ technology = supply up
→ weather= bad weather, less crops

Determinants:
→ Level of spare capacity
(more = elas, less= inelas)
→ Number of producers
(more= elas, less= inelas)
→ Short vs Long run
(short= inelas, long= elas)
→ Ease and cost of factor substitution
(easy= elas, difficult= inelas)
→ Ability to import

Constant / Factors affecting demand curve:

→ direct taxes
→ price of substitutes, and complements
→ changes in taste and fashion
→ incomes of people
→ Advertising campaigns
→ price (quantity demanded)
→ predictions ( Olympics hosted = demand for food,
transport, hotels up)

* Y-axis can never cause a shift (wages & price)

* inferior goods = negative relationship with demand (price up, demand down)
* extensions and contractions only caused by price change
* elastic supply is more responsive to subsidies

Supply side policies:

→ incentives for enterprises to start up businesses and invest
→ tax exemption, research and development
→ infrastructure, development of new industries
→ education and training
→ creating competition between businesses
→ opening trade and investment from overseas

Derived demand occurs when there is a demand for a

good or factor of production resulting from demand for an
intermediate good or service. Example – mobile phones
and lithium batteries. The rise in demand for mobile
phones and other mobile devices has led to a strong rise in demand for lithium.

UNEMPLOYMENT can never shift the PPC (only movement on the curve or within a curve
Expansionary monetary policy = money supply up and low interest rates
Fixed exchange rate requires government to hold foreign exchange reserves for unexpected fluctuations
Low exchange rate = inflation High ER = reduce economic growth

→ gov sets high price to discourage demerit goods demand

→ high prices = high profits = more firms producing = higher taxes
revenues

Minimum price: → surplus leads to wastage of resources

→ extremely high prices = black market formations
→ instantly reduces price (merit goods)
→ first customers who get the product are well off
→ shortage in the market → black markets might form

To reduce monopolies:
Prevent non competitive Predatory pricing= firms charging a price below cost to drive a rival firm out of the market
practices like →

Remove barriers to enter Limit pricing = setting price low to discourage the entry of new firms into the market
and exit

Real GDP per capita → goods and services produced and consumed by a single individual - accounted for inflation
Does not tell about the type of product or income distribution
Might be currency variations and does not take pollution into consideration

Increased government spending increases inflation

Demand for labour Supply for labour

Economic situation (good, demand up) Labour participation rate (rate up, supply up)
productivity of labour (high, demand up) Welfare benefits (high, supply down)
Government laws (strict, demand up) Geographical mobility (high, supply up)
Occupational mobility (high, supply up)

Labour productivity = labour / output

Capital productivity = capital / output

Tariffs reduce the level of international trade as they distort the efficient allocation of world resources on the basis of
comparative advantage.
Demand for capital goods:
 - Profits (up, demand up)
- Interest rates (down, demand up)
- Corporation tax (down, demand up)
- Disposable income (up, demand up)
- Advances in technology (up, demand up)

Average fixed cost = total fixed cost / quantity of output

It continuously falls as output rises

Average variable cost = Total variable cost / quantity of output

Tend to fall, then rise as output rises

Average (total) cost = total cost / quantity of output

Profit = TR - TC
Profit per cost = AR - AC (per unit)
Average revenue
= total revenue / quantity sold

Price taker

The
market
decides
the
price
and the
firms
follow

Floating exchange rate automatically adjust

current account of the balance of payments
as increase in demand for exports will
increase exchange rate reducing demand on
exports.

Price maker
- Firm sets the prices → → → →
 → Effect of quota on demand and supply = Perfectly inelastic

Countries are likely to experience balance of payments

problems it will be exporting relatively cheaper products
while importing relatively expensive products

Current account sections:

1) Trade in goods
2) Trade in services
3) Primary income (interests, profits, dividends from
investments )
4) Secondary income (foreing aid, remittances)

Demand-pull inflation exists when aggregate demand for a good or

service outstrips aggregate supply. It starts with an increase in
consumer demand. Sellers meet such an increase with more supply. But
when additional supply is unavailable, sellers raise their prices.
( caused by monetary and real factors)

Labour force= self employed + employee + unemployed

Working age population= employed + self employed + unemployed +
non participating unwilling
Labour force participation rate = percentage of working population that is
a part of the working
force

Cost-push inflation occurs when overall prices increase (inflation) due to

increases in the cost of wages and raw materials (caused by monopolistic businesses)
The wage-price spiral suggests that rising wages increase disposable income raising the demand for goods and
causing prices to rise

Good deflation, they maintain, occurs when aggregate supply of goods (say from technological advances, improved
productivity, and the like) increases faster than aggregate demand, resulting in falling prices

Bad deflation in turn occurs when aggregate demand falls faster than any growth in aggregate supply
Calculations for Gdp= gdp2 - gdp1 / gdp1

PED= % change in quantity demanded / %

change in price
PES = % change in quantity supplied / %
change in prices
→ q2-q1 / q1 / p2-p1 / p1

GNP = GDP + Net Property Income from

Abroad
Dependency ratio = dependant population /
economically active