Pavane’sEconomicsNotes[4thFeb2009]Economicsisthestudyofhowweuseourlimitedmeanstosatisfyourunlimitedwants.LIMITEDMEANS----Allpeoplehavelimitedtime,skillsandmoneysotheyhavetomakechoicestohowtousethemtothebestadvantageforthem.CHOICE----Sincewecan’thaveeverythingwewantaswehavelimitedmeanswehavetomakedecisions.(Decisionsbetweenalternatives)OPPORTUNITYCOST----Thenextbestalternativeforgonewhenadecisionismade.[5thFeb2009]OpportunitycostUnlimitedwantsChoiceScarcityLimitedmeansTheeconomicsproblemisscarcity.Thismeansthatwehavelimitedmeansbutunlimitedwants.Becauseofthiswehavetomakeachoice.Everychoicehasanopportunitycost.NEEDS----Thosethingswerequireinordertosustainlife.e.g.food,clothingandshelterWANTS----Thingswedesiretomakeourlifemoreenjoyable.e.g.cellphone,stereo,SPAWantschangeaswegetolderbecauseourtasteschangeandnewthingsareintroducedastechnologyimproves.Unlimitedwants[17thFeb2009]VALUES----Corebeliefsorprinciplesthatinfluenceyourdecisions.>>Honesty>>Integrity>>Fair-trading>>ConsiderationofothersINFLUENTSONVALUES:Culture,Environment,Education,Upbringing(Family)Internet,FinanceDEMAND----Demandistheamountofagoodorservicethatapersoniswillingandabletopurchaseateachprice.THELAWOFDEMAND:----Asthepriceofagoodorservicerises,thequantitydemandedfallsorasthepricefallsthequantitydemandedincreases,ceterisparibus.CETERISPARIBUS----Allotherfactorsremainconstant.LimitedMeansScarcityChoiceOpportunitycost[17thFeb2009]Hugh’sweeklyQuantityDemandedschedulePrice[$]Quantitydemanded0.50301.00201.50122.007>>TTitleisclearstartingwhatthegraphshowsandthetimeperiod.>>AEvenandappropriatescaleonyouraxis.>>LLabelaxeswithitemandunite.>>PPlotyourpointsandjointhemusingaruler.[22ndFeb2009]DETERMINANTSOFDEMANDInfluents,otherthanprice,thatwillinfluenttheamountconsumers’purchase.>>Income>>Taste/Fashion>>Priceofsubstitutes>>PriceofComplementarygoods>>SeasonsSUBSTITUTEGoodsthatcanbeusedtoinsteadofothergoods.e.g.butterandmargarine:Ifthepriceofbutterincreases,morepeoplewillbuymargarineasitisrelatingcheaper.COMPLIMENTSGoodsthatareusedtogether.e.g.DVDsandDVDplayers:WhenpriceofDVDplayersdecreasethereisanincreaseindemandforDVDs.CHANGEINDEMAND----Changeindemandiscausebyachangeindeterminantsandwillresultinamovementoftheentiredemandcurve.e.g.DecreaseinDemand:thedemandhasdecreaseateachprice.[4thMar2009]DEMANDSCHEDULE----Atableshowingthequantityofagoodorservicethatconsumeriswillingandabletopurchaseatvariousprices,inagiventimeperiod,ceterisparibus.[16thMar2009]INFERIORGOODS----Theyarepoorerqualitygoodsthatyouwillbuylessasyourincomerises.e.g.cheapcutsofmeatinsteadofsteakNORMALGOODS----Goodsthatyouwillbutmoreasyourincomerises.NECESSITIES----Thingsneededtosustainlife.Necessitiesareusuallynormalgoodssoyouwillbuymoreasyourincomerises.LUXURIES----Itemsnotneededbutmakeyourlifemoreenjoyable.Householdsonlowincomesspendasmallproportionoftheirincomeonluxuries.Asahousehold’sincomerisestheyspendagreaterproportionoftheirincomeonluxuries.HOUSEHOLD----Apersonorgroupofindividuals(families,flatmates)livingtogetherunderoneroof.AGGREGATEHOUSEHOLDEXPENDITURE----Thespendingofallhouseholdstakenasasinglegroup.AverageweeklyExpenditureforallhouseholds2001ExpenditureGroup$Spend%DegreeFood124.9016.4759Homeownershipandrent181.0023.8786Clothingandfootwear24.503.2312Householdoperation97.0012.7946Carownershipandrunning120.7015.9257Othergoods85.0011.2040Otherservices125.3016.5260Total758.40[19thMar2009]SPENDINGPATTERNS----Asaperson’sincomeincreasestheymayspendmoremoneybuttheygenerallywillsavemoree.g.Ifapersonearns$1000andsaves$100,hespends90%andsaves10%.Ifhisincomeincreasesto$1200,hespends$1020(85%)andsave180(15%).----Theamounthespendhasincreasedbutasapercentageofhisincomehasfallen.Thepercentageofthesavingshasincreased.CONSUMPTION----Thespendingongoodsandservices.Group1-BasicNecessities-Forhouseholdwithlowlevelsofincomespendmostoftheirmoneyonthisgroupwithalittlebasicservicesandevensmallerluxuries.Theyhavenosavings.Group2-BasicServices-Alllevelsofincomemainlyinlow-levelincomesusethis.Group3-Luxurygoodsandservices-Thisisforhouseholdswithhigherlevelofincomeastheyareabletoaffordmoreandbetterqualityproducts/services.Group4-Savings-Savingsiswhathouseholdswithhighincomelevelsdoastheyhavemoneyleftafterbuyingnecessitiesandnormalgoods.Graph-Thisgraphshowswhathouseholdsexpenditureisusedonrelativetolevelsofincome[27thMar2009]ApplicationquestionBenWilson’sfamilyincomehasdoubledsince1996.ThepieGraphsbelowshowhowthefamilyusedtheirincomein1996andhowtheyuseitnow.
