Pavanes Economics Notes4th Feb 2009Economics is the study of how we use our limited means to satisfy our unlimited wants.Limited Means- All people have limited time, skills and money so they have to make choices to how to use them to the best advantage for them.Choice- Since we cant have everything we want as we have limited means we have to make decisions. (Decisions between alternatives)Opportunity Cost- The next best alternative forgone when a decision is made.5th Feb 2009Opportunity costUnlimited wantsChoiceScarcityLimited meansThe economics problem is scarcity. This means that we have limited means but unlimited wants. Because of this we have to make a choice. Every choice has an opportunity cost.Needs- Those things we require in order to sustain life.e.g. food, clothing and shelterWants- Things we desire to make our life more enjoyable.e.g. cell phone, stereo, SPAWants change as we get older because our tastes change and new things are introduced as technology improves.Unlimited wantsLimited MeansScarcityChoiceOpportunity cost17th Feb 2009Values- Core beliefs or principles that influence your decisions.HonestyIntegrityFair-tradingConsideration of othersInfluents on values:Culture, Environment, Education, Upbringing (Family)Internet, FinanceDemand- Demand is the amount of a good or service that a person is willing and able to purchase at each price.The law of Demand:- As the price of a good or service rises, the quantity demanded falls or as the price falls the quantity demanded increases, ceteris paribus. Ceteris paribus- All other factors remain constant.17th Feb 2009Hughs weekly Quantity Demanded schedulePrice $Quantity demanded0.50301.00201.50122.007TTitle is clear starting what the graph shows and the time period.AEven and appropriate scale on your axis.LLabel axes with item and unite.PPlot your points and join them using a ruler.22nd Feb 2009Determinants of Demand Influents, other than price, that will influent the amount consumers purchase.IncomeTaste/ FashionPrice of substitutesPrice of Complementary goodsSeasonsSubstituteGoods that can be used to instead of other goods.e.g. butter and margarine : If the price of butter increases, more people will buy margarine as it is relating cheaper.ComplimentsGoods that are used together.e.g. DVDs and DVD players : When price of DVD players decrease there is an increase in demand for DVDs.Change in Demand- Change in demand is cause by a change in determinants and will result in a movement of the entire demand curve.e.g. Decrease in Demand : the demand has decrease at each price.4th Mar 2009Demand Schedule-A table showing the quantity of a good or service that consumer is willing and able to purchase at various prices, in a given time period, ceteris paribus.16th Mar 2009Inferior Goods- They are poorer quality goods that you will buy less as your income rises. e.g. cheap cuts of meat instead of steakNormal Goods- Goods that you will but more as your income rises.Necessities- Things needed to sustain life. Necessities are usually normal goods so you will buy more as your income rises.Luxuries- Items not needed but make your life more enjoyable. Households on low incomes spend a small proportion of their income on luxuries. As a households income rises they spend a greater proportion of their income on luxuries.Household- A person or group of individuals (families, flat mates) living together under one roof.Aggregate Household Expenditure- The spending of all households taken as a single group.Average weekly Expenditure for all households 2001Expenditure Group$ Spend%DegreeFood124.9016.4759Home ownership and rent181.0023.8786Clothing and footwear24.503.2312Household operation97.0012.7946Car ownership and running120.7015.9257Other goods85.0011.2040Other services125.3016.5260Total758.4019th Mar 2009Spending Patterns- As a persons income increases they may spend more money but they generally will save moree.g. If a person earns $1000 and saves $100, he spends 90% and saves 10%. If his income increases to $1200, he spends $1020 (85%) and save 180 (15%).- The amount he spend has increased but as a percentage of his income has fallen. The percentage of the savings has increased.Consumption- The spending on goods and services.Group1- Basic Necessities-For household with low levels of income spend most of their money on this group with a little basic services and even smaller luxuries. They have no savings.