CHAPTER 2 : Pricing Theories

 

Price Elasticity of Demand (PED) is the responsiveness of quantity demanded to a change in price . It is the percentage change of quantity demanded in response to a one percent change in price. Demand is said to be inelastic where PED is less than one, whereas it is said to be elastic where PED is greater than one.

(((Original Price - New Price) / Original Price) * 100) = % Change in Price

(((Original Quantity Demanded - New Quantity Demanded) / Original Quantity Demanded) *100) = % Change in Quantity Demanded

% Change in Quantity Demanded / % Change in Price = PED

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Topic 1.6 : Production Possibilities Curve (PPC)

The Production Possibilities Curve (PPC)

Using Economic Models…

Step 1: Explain concept in words

Step 2: Use numbers as examples

Step 3: Generate graphs from numbers

Step 4: Make generalizations using graph

What is the Production Possibilities Curve?

A production possibilities graph (PPG) is a model that shows alternative ways that an economy can use its scarce resources

This model graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency.

Production Possibilities curve

4 Key Assumptions

• Only two goods can be produced

• Full employment of resources

• Fixed Resources (Ceteris Paribus)                                                                          
• New technology launched

Attainable and Unattainable combination

1. Attainable and efficient combination 

• Based on A,B,C,where resources fully utilized and the country is said to be at full economy level. 

    2. Attainable but not efficient combination

• Based on D the resources are not fully utilized( unemployment exist)

    3. Not attainable combination.

• Based on E ,not enough resources and no new technology

   4. extreme combination

• is where resources will use for produce only one goods

Change in production possibilities curve

-PPC Can increase or decrease due to the several factor

a. Increasing population :

• Manufactures will increase the volume goods when there is an increase in the population. production of both goods will increase. This cause the production possibilities curve shift to the right

b. Technology progress

• The factor can shift the ppc outward through an improvement in technology. 

Topic 1.5 : Factor of Production

The Factors of Production

LAND
It refers to all natural resources which are free gifts of nature. Land, therefore, includes all gifts of nature available to mankind—both on the surface and under the surface, e.g., soil, rivers, waters, forests, mountains, mines, deserts, seas, climate, rains, air, sun, etc.  

LABOUR 
Human efforts done mentally or physically with the aim of earning income is known as labour. Thus, labour is a physical or mental effort of human being in the process of production. The compensation given to labourers in return for their productive work is called wages 

CAPITAL
All man-made goods which are used for further production of wealth are included in capital. Thus, it is man-made material source of production. Alternatively, all man-made aids to production, which are not consumed/or their own sake, are termed as capital

ENTREPRENEURSHIP
An entrepreneur is a person who organises the other factors and undertakes the risks and uncertainties involved in the production. He hires the other three factors, brings them together, organises and coordinates them so as to earn maximum profit. For example, Mr. X who takes the risk of manufacturing television sets will be called an entrepreneur. 

Topic 1.4 : Basic Economic Problems

What to Produce

• The firm will produce goods base on demand.

How much to produce

• Base on total demand of the goods

How to produce

• Producers will choice the intensive will decreasing the production cost

For whom to produce

• The goods are distributing base of income of people

Topic 1.3 : Basic Economic Concept

Scarcity

• It can simplified as, lack or decrease of resources to fulfilled the demand.

Choice

• Resources in the world are limited, we can't satisfy all our want and force to choose. 

Opportunity Cost

• The second goods that will be forgone to get the best alternative

Topic 1 : Definition of Economy

DEFINITION OF MICROECONOMICS

The branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households. It is concerned with the interaction between individual buyers and sellers and the factors that influence the choices made by buyers and sellers. In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets (e.g. coffee industry).