Topic 2
worth $8,000 each) - $60,000 (selling 5 trucks
SCARCITY, SUPPLY AND DEMAND
What is Consumer Choice ?
Consumer choice is the branch of
microeconomics that studies how preferences
are related to consumption expenditures and
demand curves. It examines how consumers
maximize the desirability of their
consumption as measured by their
preferences while limiting their expenditures,
by maximizing utility while limiting consumer
spending.
Why the consumer choice is important?
Consumer preference is critical to economics
because of the relationships between
preferences and consumer demand curves. It
is important to understand what Eddie and
other consumers prefer to spend their income
on which will help predict consumer demand.
What exactly is a Consumer Budget?
A consumer budget is the actual purchasing
power with which a consumer can buy a pair
of goods, given their prices.
How does the budget influence consumer
choices?
The budget framework suggests that when
income or prices change, a variety of
responses are possible. When household
income rises, they demand more normal
goods but less inferior goods.
Opportunity cost steps
What is Opportunity Cost?
Opportunity costs represent the potential
benefits that an individual, investor, or
business misses out on when choosing one
alternative over another. It is the value of
what you lose when choosing between two or
more options. Another way to say this is: it is
the value of the next best opportunity.
Opportunity Cost Steps:
1. Identify your different options.
2. Calculate the potential returns on each
option.
3. Choose the best option.
4. Calculate the opportunity cost.
Formula for Opportunity Cost
Opportunity Cost= FO-CO
where:
FO= Return on the best forgone option
CO= Return on the chosen option
Examples
If a car manufacturer could produce 10 cars
worth $8,000 each or 5 trucks worth $12,000
each per day, what is the opportunity cost of
choosing to produce trucks instead of cars.
Formula:
Opportunity Cost= FO – CO
Opportunity Cost= $80,000 (selling ten cars
worth $12,000 each)
Opportunity Cost= $20,000
Example 2
Jill decides to take the bus to work instead of
driving. It takes her 60 minutes to get there
on the bus and in driving would have been 40
minutes, so her opportunity cost is 20
minutes.
Formula
Opportunity Cost= FO – CO
Opportunity Cost= 60 - 20
Opportunity Cost= 20 minutes
What is Demand?
Demand refers to how much (quantity) of a
product or service is desired by buyers.
The Quantity Demand is the amount of a
good that a buyer is (buyers are) willing and
able to purchase during a specified period of
time.It also refers to a particular number of
units. The relationship between price and
quantity demanded is known as the demand
relationship.
There are many factors affecting demand and
one of the are The good's own price. The
consumer's income.The prices of related
goods.The tastes and preferences of the
consumer and expectations and other special
influences.
DEMAND CURVE is a graphical
representation how much of a given product a
household would be willing to buy at different
prices.
FACTORS THAT AFFECT THE DEMAND
CURVE
There are many factors that affect the
demand curve and that is taste and
preferences of the consumer preference
refers to listing alternatives based on several
ratings until they result in a choice. Consumer
taste refers to what consumers like to buy.
Next is the income of the people can mean the
money people receive for the work they do in
the form of wages or salaries.
Changes in Prices of the Related Goods
The demand for a product can also be affected
by changes in the prices of related goods such
as substitutes or complements.
Substitutes goods are two goods substitutes
if the products could be used for the same
purpose by the consumers.Complementary
goods is a good that adds value to another or
a good that cannot be used without each
other. Advertisement Expenditure refers to
cost incurred in promoting a business or
products, such as publications in periodicals.
The Number of Consumers in the Market
is the number of people or the consumer
wants to purchase a product in the market.
Consumers’ Expectations with Regard to
Future Prices customers have price
expectations in their minds before they
buying a product, as well as expectations of
prices in current time or in future.
Supply And supply curve
What is Supply?
Supply is represents how much the market
can offer.While the quantity supplied refers
to the amount of a certain good producers are
willing to supply when receiving a certain
price.The correlation between price and how
much of a good or service is supplied to the
market is known as the supply relationship.
The Supply schedule shows how much of a
product firms will supply at different prices.
And quantity supplied represents the
number of units of a product that a firm
would be willing and able to offer for sale at a
particular price during a given time period.
We also have a supply curve it is a graph
illustrating how much of a product a firm will
supply at different prices. The Law of Supply
states that there is a positive relationship
between price and quantity of a good
supplied.