Allocation of resorces

252 views

Published on

Published in: Education
  • Be the first to comment

  • Be the first to like this

Allocation of resorces

  1. 1. Allocation of Resources
  2. 2. The 3 basic problems 1) What to Produce? 2)How to Produce? 3) For Whom to Produce? We have to allocate resources The allocation of resources in a country can be done in 3 ways: 1)Market Economic System 2) Mixed Economic System 3) Planned Economic System
  3. 3. Which one do you like?
  4. 4. Market Economy • Consumers decide what to produce. • Private property • Changes in supply and demand control the prices • No Government Intervention • Market economy is an ideal which does not exist today
  5. 5. Advantages………. • Freedom for everyone • No Government Intervention • Variety of goods and services are produced – Consumer Choice • High consumer satisfaction • It is Efficient
  6. 6. Mixed Economy • Has • Private Sector – privately owned • Public Sector – owned by govt. • Govt produces some goods. Eg: Roads, Hospitals, Schools, etc • Government intervention is very less.
  7. 7. Planned Economy • Government decides what to produce • Everything owned by government – No private ownership • Government decides the prices • No consumer choice
  8. 8. The amount of money a product is worth is called its “Price” A place (any size) where a buyer buys & seller sells is called MARKET
  9. 9. What is Demand? • Demand is the quantity of a product that consumers are –Willing to buy –Able to buy –At a price –Over a period of time
  10. 10. • Individual demand the demand of one consumer • Market demand is the total demand of all the consumers.
  11. 11.  When goods are cheap, People buy more When goods are expensive, People buy less
  12. 12. The DemandCurve The Demand Curve Price ($) The demand curve shows the quantity demanded at any given price. P 2000 Q 1600 R 800 D 3000 5000 Quantity 7000
  13. 13. The Demand Schedule Price of a computers Quantity demanded per week 2000 1800 1600 1400 1200 1000 2000 3000 4000 5000 The Demand Schedule shows quantities demanded at given price (usually set by the producer)
  14. 14. Changes in Demand Curve • The changes can be • Movement along Demand Curve • Shifts of Demand Curve
  15. 15. Price 0 10 20 30 40 50 60 Movement of Demand Curve 0 1 2 3 4 5 Quantity
  16. 16. Price 0 10 20 30 40 50 60 As the price changes, the quantity demanded will also change. 0 1 2 3 4 5 Quantity
  17. 17. Price 0 10 20 30 40 50 60 Shift of Demand Curve 0 1 2 3 4 5 Quantity
  18. 18. Price 0 10 20 30 40 50 60 At the same price, a different quantity is demanded. 0 1 2 3 4 5 Quantity
  19. 19. Income Population Prices of Related Goods Taste & Fashion Why Demand Changes? Other factors
  20. 20. Taste & Fashion • Fashion of cloth changes  Demand changes • A research shows that dark chocolate is healthy  Demand ↑ • More people want to become vegetarian  Demand of meat ↓ • If Advertising of a product is successful  demand ↑
  21. 21. Volkswagen VW's most legendary advertising campaign of all time. From then to now, every company has measured the success against the Think Small campaign.
  22. 22. Income Income • Disposable income = Income – Tax • Income ↑  Demand↑ • Income ↓ Demand ↓
  23. 23. Population Population • If population is more  Demand is more
  24. 24. Price of Related Goods Price of Related Goods Related Goods Substitute Goods Complement Goods Goods which can replace each other Goods used together
  25. 25. Substitute Goods P↑ D ↓ P↑ D↑ D↓ P↓ D↑ P↓ D↓
  26. 26. Complement Goods
  27. 27. Other Factors Weather Expectations of future prices changes • If consumers expect prices ↑  Demand ↑ now • If consumers expect prices ↓  Demand ↓ now.
  28. 28. The supply curve What is Supply? • Supply is the quantity of a product that suppliers are – willing to sell – Able to sell – At various prices – Over a period of time
  29. 29. • Individual Supply - the supply of one Firm/ Producer • Market Supply is the total Supply of the Market
  30. 30.  When goods are cheap, producer sell less When goods are expensive, producer sell more
  31. 31. The Supply Curve The Demand Curve 200 S Price 160 120 80 40 0 10 20 30 40 500 60 70 Quantity The Supply curve shows the quantity supplied at any given price.
  32. 32. The Supply Schedule Price of a Quantity supplied PC($) per week 800 1000 1000 2000 1200 3000 1400 4000 1600 5000 The Supply Schedule shows quantities supplied at given price
  33. 33. Changes in Supply Curve • The changes can be • Movement along Supply Curve • Shifts of Supply Curve
  34. 34. Movement of Supply Curve S B Price $30 $15 A 1,250 Quantity 1,500 As the price changes, the quantity supplied will also change.
  35. 35. Shift of Supply Curve S2 S Price S1 $15 A 1,250 Quantity B 1,500 At the same price, a different quantity is supplied.
  36. 36. Taxes Subsidies Cost of Production Why Supply Changes? Taste & Fashion Other factors
  37. 37. Cost of Production (COP) COP↑  supply ↓ & COP ↓  supply ↑ COP may change due to change in……. –Wages (Salary) –Productivity (output per worker) –Raw material –Energy costs (Electricity) –Transport costs
  38. 38. Income Taxes If government puts taxes  COP ↑  Supply ↓
  39. 39. Population Subsidies • If the government gives a subsidy  COP ↓  Supply ↑
  40. 40. Price of Related Goods Price of Related Goods Related Goods Profitability of goods in joint supply Profitability of substitutes in supply
  41. 41. The Profitability of Goods in Joint Supply • DVD Players and DVD are produced together. • When the Price of DVD Players ↓  Demand of DVD Players ↑  So more DVDs are needed  So the Supply of DVDs ↑) also increase.
  42. 42. The Profitability of Substitutes in Supply • If Mango Juice becomes more PROFITABLE than Apple Juice, producers will produce more Mango juice . So Supply of Mango juice ↑ Supply of Apple Juice ↓ &
  43. 43. Other Factors War Weather - Earthquakes , floods & fire The breakdown of machinery Expectations of future prices changes – If producers expect prices ↑  Supply ↓ now & will build up STOCKS – If producers expect prices ↓  Supply ↑ now & reduce production
  44. 44. • Demand & Supply of a product determines the PRICE of a product!!! • When • Demand = Supply  Equilibrium • Demand ≠ Supply  Disequilibrium
  45. 45. Demand = Supply (Equilibrium Point) 48
  46. 46. • Surplus – Supply > Demand • Shortage – Demand > Supply AS Economics Unit 2 Chapter 7 49
  47. 47. Why the Equilibrium Changes? –Change in Demand –Change in Supply –Change in Demand & Supply

×