SAJC 2023 JC1 H2 Price Mechanism and its Applications Part 1 Lecture Notes_Uploaded Version

Price Mechanism and its Applications Part 1: Demand, Supply and Price Determination 1 0 INTRODUCTION 4 1 PRICE MECHANISM AND ITS FUNCTION 1.1 Allocation of Scarce Resources in the Free Market 4 2 THEORY OF DEMAND 2.1 Definition of Demand 6 2.2 Demand Curve 6 2.3 Law of Demand 8 2.4 Individual vs. Market Demand 8 2.5 Price and Non-price Determinants of Demand 9 3 THEORY OF SUPPLY 3.1 Definition of Supply 19 3.2 Law of Supply 19 3.3 Supply Curve 19 3.4 Individual vs. Market Supply 21 3.5 Price and Non-price Determinants of Supply 22 4 PRICE DETERMINATION 4.1 The Interaction of Demand and Supply 29 4.2 Market Equilibrium 29 4.3 Demand and Supply Analysis 31 4.4 Effects of Changes in Both Demand and Supply 33 4.5 Effects of Changes in Demand for and Supply of Labour 37 5 CONSUMER AND PRODUCER SURPLUS 5.1 Consumer Surplus 5.2 Producer Surplus 40 42 6 GOVERNMENT INTERVENTION IN THE FREE MARKET 6.1 Price Control: Maximum Price (Price Ceiling) 44 6.2 Price Control: Minimum Price (Price Floor) 46 6.3 Indirect Taxes 47 PRICE MECHANISM AND ITS APPLICATIONS PART 1: DEMAND, SUPPLY AND PRICE DETERMINATION The theme on Price Mechanism and its Applications provides an introduction on how markets deal with the Central Problem of Economics, and how decisions are made by self- interested consumers and producers in markets. You will learn how market forces of demand and supply interact to bring about market equilibrium, allocating resources via the price mechanism to maximise social welfare. You will also be able to apply this knowledge to analyse market outcomes in different situations. ST ANDREW’S JUNIOR COLLEGE JC1 H2 ECONOMICS 2023

Price Mechanism and its Applications Part 1: Demand, Supply and Price Determination 2 6.4 Subsidies 49 6.5 Quantity Control: Quotas 51 Reading List and References 1. Colander, David. C (2006) “Supply and Demand” in Economics. 6th Edition, New York: McGraw Hill p 102-108 2. Colander, David. C (2006) “Using Supply and Demand” in Economics. 6th Edition, New York: McGraw Hill p 114-128 3. Sloman, John "Supply and Demand" in Economics. 6th Edition, UK: Prentice Hall 4. Colander, David. C (2006) “Using Supply and Demand” in Economics. 6th Edition, New York: McGraw Hill p 114-128 5. Economic Review, Volume 27 No. 1 September 2009 p.15-17 6. Mankiw, N. Gregory, Quah, Euston and Wilson, Peter (2008) “In the News” in Principles of Economics. An Asian Edition, Cengage Learning Asia Pte Ltd p 79 Learning Objectives By the end of this series of lectures and tutorials, you should be able to: ▪ Define demand and state the law of demand. ▪ Explain why the demand curve is downward sloping. ▪ Explain the relationship between individual demand and market demand. ▪ Explain the price and non-price determinants of demand. ▪ Distinguish the effects of a change in price a