WHY DIDN'T I JUST FUCKING DIE THAT DAMNED NIGHT LA.
puki
GARRRGGGGHHHH
I can't stand being pressured............. and temptations are just fucking fucked up..
I can't stop pretending anymore..
BUH.
i'm going to snap very soon GAH.
One more time, and I'm gonna snap..one more time and I'm gonna snap.. one more time and I'm gonna snap..one more time and I'm gonna fuckin' snapp..gonna snap, gonna snap gonna snap..gonna snapp..gonna snap gonna snap gonna snap..
You haven't learned a thing I haven't changed a thing The flesh was in my bones The pain was always free You haven't learned a thing I haven't changed a thing The flesh was in my bones The pain was always free I felt the hate rise up in me Kneel down and clear that stone of leaves I wander out where you can't see Inside my shell I wait and bleed I felt the hate rise up in me Kneel down and clear that stone of leaves I wander out where you can't see Inside my shell, I wait and bleed. CHAPTER 2
The Demand Curve
“When the price of a good rises, the quantity demanded will fall.”
– The law of demand1.
E.g. If coffee prices increase, you will either cut down on the amount of coffee you drink, or you might give up drinking coffee instead.
Key structure in above example: Increase of price, demand will be less. Decrease of price, demand will be more.
The law of demand has 2 reasons:
- People will feel poorer. They will not be able to afford to buy so much of the good with their money. The purchasing power of their income (their real income) has fallen. This is called the income effect2 of a price rise.
- With problems stated above, the market will seek and switch to alternative of ‘substitute’ goods. This is called the substitution effect3 of a price rise.
E.g. we will drink more tea, cocoa, fruit juices or even water instead.
But when the price of a good falls, the quantity demanded will rise. More people are able to afford to buy more (the income effect), and they will switch away from consuming alternative goods (the substitution effect).
Other determinants of demand
Price is not the only factor that affects the amount of goods being purchased by the market. Market demand can also be affected by the following:
The more desirable find the good, the more they will demand. Tastes are affected by advertising, fashion, observing other consumers, considerations of health and the experiences from consuming the good on previous occasions.
- The number and price of substitute goods4/competitive goods
The higher the price of substitute goods, the higher will be the demand for this good as people switch from the substitutes. For example, the demand for coffee will depend on the price of tea. If tea goes up in price, the demand for coffee will rise.
- The number and price of complementary goods
Complementary goods5 are those that are consumed together:
· Car and petrol
· CDs and CD players
· Computer and printers
The higher price for completmentary goods, the fewer of them will be bought and hence the less will be demanded for this good.
E.g. The demand for electricity will depend on the price of electrical goods. If the price of electrical goods goes up, so that fewer are bought, the demand for electricity will fall.
As people incomes rise, their demand for most goods will rise. Such goods are called normal goods6. There are exceptions to this general rule, however. As people get richer, they spend less on inferior goods7, such as cheap margarine and switch to better quality margarine.
If national income were redistributed from the poor to the rich, the demand for luxury goods would rise. At the same time, as the poor got poorer they might have tot urn to buying inferior goods, whose demand thus rise too.
- Expectations of future price changes
If people think that prices are going to rise in the future, they are likely to buy more now before the prices increase.
Examples for the above 6 determinants:
Tastes: If butter is heavily advertised, demand is likely to rise. If, on the other hand, there is a cholesterol scare, people may demand less for health reasons.
Substitutes: If the price of margarine goes up, the demand for butter is likely to rise as people switch from one to another.
Complements: If the price of bread goes up, people will buy less bread and hence less butter to spread on it.
Income: If people’s income rises, they may well turn to consuming butter rather than margarine, or feel that they can afford to spread butter more thickly on their bread.
Income distribution: If income is redistributed away from the poor, they may have to give up consuming butter and bu cheaper margarine instead, or simply buy less butter and use it more sparingly.
Expectations: If it is announced in the news that butter prices are expected to rise in the near future, people are likely to buy more now and stock up their freezers while current prices last.
Movements along and shits in the demand curve
“If a change in one of the other determinants causes demand to rise – say, income rises – the whole curve will shift to the right. This shows that each price more will be demanded than before. But, if a change in a determinant other than price causes demand to fall, the whole curve will shift to the left.”
It is usual to distinguish between a change in demand and a change in quantity demanded. A sift in demand is referred to as a change in demand8, whereas a movement along the demand curve as a result of a change in price Is referred to as a change in the quantity demanded9.
The Supply Curve
“When the price of a good rises, the quantity supplied will also rise.”
- As firms supply more, they are likely to find that beyond a certain level of output costs rise more and more rapidly.
- The higher price of the good, the more profitable it becomes to produce. Firms will thus be encouraged to produce more of it by switching from the production of less profitable goods.
- Given time, if the price of a good remains high, new producers will be encourages to set up in production. Total market supply thus rises.
Other determinants of supply
Like demand, supply is not determined by price. The other determinants of supple are as follows:
The higher the costs of production, the lesser the profit. As costs rise, firms will cut back on production, probably switching to alternative products whose costs have not risen so much. The main reasons for a change in costs are:
· Change in input prices: Costs of production will rise if wages, raw material prices, rents, interest rates or any other input prices rise.
· Change in technology: technological advances can fundamentally alter the costs of production.
E.g. How the microchip revolution has changed the production methods and information handling in virtually every industry in the world.
· Organisational changes: Various cost savings can be made in many firms by reorganizing production.
· Government policy: Costs will be lowered by government subsidies and raised by various taxes.
- The profitability of alternative products (substitutes in supply)
If some alternative product (a substitute in supply10) becomes more profitable to supply than before, producers are likely to switch from the first good to this alternative. Supply of the first good falls. Other goods are likely to become more profitable if:
· Their prices rise
· Their costs of production fall.
E.g. If the price of carrots goes up, or the cost of producing carrots comes down, farmers may decide to produce more carrots. The supply of potatoes is likely to fall.
- The profitability of goods in joint supply
Sometimes when one good is produced, another good is also produced at the same time. These are said to be goods in the joint supply11.
E.g. Refining of crude oil to produce petrol will also produce other graded petrol such as diesel and paraffin. If more petrol is produced, due to a rise in demand, then the supply of these other fuels will rise too.
- Nature, ‘random shocks’ and other unpredictable events
In this category we would include the weather and diseases affecting farm output, wars affecting the supply of imported raw materials, the breakdown of machinery, industrial disputes, earthquakes, floods and fire, and so on.
A profit maximising firm will supply a different quantity from a firm that has a different aim, such as maximising sales. For most of the time we shall assume that firms are profit maximisers.
- Expectations of future price changes
If prices are expected to rise, producers may temporarily reduce the amount they sell. Instead they are likely to build up their stocks and release them onto the market only when the price does rise. At the same time they may plan to produce more, by installing the new machines or taking on more labour, so that they can be ready to supply more when the price has risen.
To illustrate some of these determinants, the example of butter will be used:
Reduction in the costs of producing butter: Reducing of the cost in nitrogen fertiliser will encourage farmers to use more fertiliser, which would increase grass yields, which in turn would increase milk yields per hectare. Alternatively, new technology may allow more efficient churning of butter. Or again, the government may decide to give subsidies to farmers to produce more butter.
Reduction in the profitability of producing cream or cheese: If these products become less profitable, due say to a reduction in their price, due to turn to a reduction in consumer demand, more butter is likely to be produced instead.
An increase of profit of skimmed milk: If consumers buy more skimmed milk, then an increased supply of skimmed milk is likely to lead an increase in the supply of butter and other cream products, since they are jointly produced with skimmed milk.
If weather conditions are favourable: Grass yields and hence milk yields are likely to be high as it will increase the supply of butter and other milk products.
If produces expect butter prices to rise in the future, they may well decide to release less onto the market now and put more into the frozen storage until the price does rise.
Movements along and shifts in the supply curve
“A rightward shift illustrates an increase in supply. A leftward shift illustrates a decrease in supply.”
A movement along a supply curve is often referred to as a change in the quantity supplied12, whereas a shift in the supply curve is simply referred to as a change in supply13.
The determination of price
The determination of price in the supply and the demand curve is through the equilibrium price14 where demand equals supply. When the demand matches the supply, the market is said to clear (market clearing15). Equilibrium16 in where the two curves intersect.
Example graphs:
At any price above the intersects’ price, the producer will experience a surplus:
And setting any price below the equilibrium price, will lead producers to a shortage problem:
A shift in one curve leads to a movement along the other curve to the new intersection point:
Keywords
The law of demand1
The quantity of a good demanded per period of time will fall as price rises and will rise as price falls, other things being equal.
Income effect2
The effect of a change in price on quantity demanded arising from the consumer becoming better or worse off as a result of the price change.
Substitution effect3
The effect of a change in price on quantity demanded arising from the consumer switching to or from alternative (substitute) products.
Demand curve
A graph showing the relationship between the price of a good and the quantity of the good demanded over a given time period. Price is measured on the vertical axis; quantity demanded is measured on the horizontal axis. A demand curve can be for an individual consumer or group of consumers, or more usually for the whole market.
Substitute goods4
A pair of goods which are considered by consumers to be alternatives to each other. As the price of one goes up, the demand for the other rises.
Complementary goods5
A pair of goods consumed together. As the price of one goes up, the demand for both goods will fall.
Normal goods6
Goods whose demand increases as consumer incomes increase. They have a positive income elasticity of demand. Luxury goods will have a higher income elasticity of demand than more basic goods.
Inferior goods7
Goods whose demand decreases as consumer incomes increase. Such goods have a negative income elasticity of demand.
Change in demand8
The term used for a shift in the demand curve. It occurs when a determinant of demand other than price changes.
Change in the quantity demanded9
The term used for a movement along the demand curve to a new point. It occurs when there is a change in price.
Substitutes in supply10
These are two goods where an increased production of one means diverting resources away from producing the other.
Goods in joint supply11
These are two goods where the production of more of one leads to the production of more of the other.
Change in the quantity supplied12
The term used for a movement along the supply curve to a new point. It occurs when there is a change in price.
Change in supply13
The term used for a shift in the supply curve. It occurs when a determinant other than price changes.
Equilibrium price14
The price where the quantity demanded equals the quantity supplied: the price where there is no shortage or surplus.
Market clearing15
A market clears when supply matches demand, leaving no shortage or surplus.
Equilibrium16
A position of balance. A position from which there is no inherent tendency to move away.
