Lesson 4 - May I serve you coffee or tea ?

Micro economic is a very established field and you will easily find material on it.
I recommend you go to RP library and pick one text book. Read only the intro chapter (what is economic), then the chapter on demand and supply.

There are many definitions of what is economic.
Simple definition : study of how people make choices or the study of how to allocate limited resources (kind of supply) to unlimited wants (kind of demand).

Eg : you may want a car now(WANT), but don't have the money to buy or maintain it(resource).
someone may have the money to buy a car(resource), but want to spend more time with the family (want) - ie it is about making choice.

Economic focuses on the process and consequences of making choices.

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Class : I have deliberately left the graph out. If you can visualise or draw the graph, based on the scenario, then you have grasp the concept. If you not, please refer to a text book, as I just wanted to recap the key points.

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Key points :

a) Law of demand- what does it says about price and quantity demanded
b) What is the relation between price and quantity demanded in a demand model?
c) What are the factors affecting demand? (identify them in worksheet question)
d) How does the the demand curve shift, when there is an increase in demand (right)?
e) How does the the demand curve shift, when there is an decrease in demand(left) ?

a) Law of supply - what does it says about price and quantity demanded
b) What is the relation between price and quantity demanded in a supply model?
c) What are the factors affecting supply?(identify them in worksheet question)
d) How does the the supply curve shift, when there is an increase in supply (right)?
e) How does the the demand curve shift, when there is an decrease in supply (left) ?

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What is the difference between demand curve and demand quantity? (IMPORTANT DISTINCTION)

DEMAND : the demand schedule for an INDIVIDUAL specifies/describes the units of a good or service that the individual is willing and able to purchase at alternative pirces during a given period of time.

The relationship between price and quantity demanded is inverse.


QUANTITY DEMANDED is the amount (quantity) that will be purchased at a given price.

A change in demand (SHIFT IN DEMAND) is NOT the same as change in quantity demanded(MOVEMENT along the demand curve).

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SHIFT IN DEMAND/CHANGE IN DEMAND.
When factors (eg government, increase in buyers, change in consumer preference) affecting it change, it SHIFT the curve.
eg : increase in foreign talent, (ie increase in buyers) demand curve shift to the right.
eg : if many Koreans immigrated to Singapore, demand for kim chi will shift to the right (ie demand increase).
eg : factor (research show coffee causes wrinkles) change, the demand curve shift to the left (decrease demand for coffee)

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MOVEMENT ALONG THE DEMAND CURVE.

When the DEMAND CURVE (ie no shift) is held CONSTANT
how does price change affect quantity demanded?

eg if price increase, QUANTITY DEMANDED decrease.
eg if price decrease, QUANTITY DEMANDED increase. (Assuming the total consumers is the same, what will happen to quantity demanded if KFC decide to run a price promotion on value meal?)
This is MOVEMENT along demand curve.

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What is substitute good? - goods that be replace each other in consumption.

What is the effect of one substitute good (eg kai lan) on another (eg choy sum)

What is complementary good? - goods that are used in conjunction with each other
(eg : cars and petrol, DVD player and DVD)


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PRICE EQUILIBRIUM/ SURPLUS, SHORTAGE.

For a given price, when quantity supplied is MORE than quantity demanded, there is a sulprus.

eg : is there a shortage or sulprus of hotel rooms available for F1 weekend?.

For a given price, when quantity supplied is LESS than quantity demanded, there is a shortage.

When quantity supplied = quantity demanded, price equilibrium is reached.

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For a given price in equilibrium,

what happen to price when something happen to demand curve and it shift right, supply curve being constant?

price start to increase (because there is a shortage)
until quantity supplied = quantity demanded,
then new price equilibrium is reached.

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what happen to price when something happen to supply curve and it shift right, demand curve being constant?

price start to descrease (because there is a sulprus)
until quantity supplied = quantity demanded,
then new price equilibrium is reached.

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Is it possible for price to remain the same?

yes, if both the supply curve and demand curve shift .

ie supply increase and demand increase or vice versa.