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NCEA Level 1 Demand cheat sheet

Scarcity Leads to Choice

The fundam­ental economic problem. There are not enough resources to satisfy the unlimited needs and wants of the popula­tion.
For Example
Time, skills, income, and people are all limited means so they cannot satisfy all of our needs and wants.
As a result of unlimited wants and scarce resources, consumers and producers have to make choices; their choices are influenced by their means, tastes, and values.
For Example
I have limited income so I can buy a pizza or a burger but not both. I have to make a choice based on what I like more or which is cheapest.
Choice leads to opport­unity cost. This is the next best altern­ative missed out on when the best altern­ative what selected. Eg. I can go to the beach or go to work. I choose to go to the beach because it's sunny. My opport­unity cost is the money I would have earnt at work.

Factors of Demand

Price Factors
-price increase
-price decrease
Non-Price Factors
-price of substi­tutes (eg. coke price falls, pepsi demand falls)
-price of comple­ments (eg. sauce price falls, pasta demand rises)
-tastes and prefer­ences

Conflicts and Compro­mises

Ideas/­beliefs that people consider important in their lives, that influence their decisions.
We do not have enough time, money, or skills to do everything that we value. Conflict may occur within our values when a hard decision needs to be made.
An agreement that is reached when conces­sions are made, to resolve conflict. Make sure your compromise includes an aspect of both altern­atives.

Types of Goods

Necessity Goods
Basic goods required for survival. As income increases demand will only increase less than propor­tio­nally.
Inferior Goods
Goods with a limited quantity or quality. As income increases demand for inferior goods fall.
Luxury Goods
A good with superior features eg. higher quality or quantity. As income increases demand for luxury goods increases more than propor­tio­nally as luxury goods tend to be more expens­ive..
Go on to discuss any further flow on effects and shifts in demand- refer to graph and income ratio.

Change in Income Model Answer

Disposable income is income earned, plus any transfer payments, minus tax. In this case, disposable income has increa­sed­/de­creased due to...
Explain the shift: As income has increa­sed­/de­creased [X's] demand for product, shown as a shift in demand to the left/right (D1 to D2). This means [X] is more/less willing and able to pay for product at each and every price level.
Go on to explain flow on effects.

Law of Demand

Individual demand is defined as the quantity of a good or service an individual is willing and able to buy at a range of prices.
a want backed up by their ability.
Law of Demand
As the price of a good or service increases, the quantity demanded decreases. Vice versa ceteris paribus.
For Example
As the price falls/­rises from $A (P1) to $B (P2) the quantity demanded of product has increa­sed­/de­creased from A (Q1) to B (Q2). Vice versa ceteris paribus.

Income and Substi­tution Effects

Income Effect
We are more willing to buy more as the cheaper price makes the good more desirable.
We are now more able to buy more with our current level of income (income effect).
Substi­tution Effect
The good is now relatively more expensive than other goods (subst­itution effect).

Flow on Effects

↪️What other things change because of a price change?
For example, if coke is cheaper what will be the flow on effects? Unheal­thier? Happier? More friends?
The Four Flows
-socia­lising and leisure
-spending or saving
-compl­iments or other things you have with the good


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