Economics

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📘 1. Market Dynamics

a. Demand and Supply

• Demand: The Quantity of a good that consumers are willing to buy at different prices.

• Supply: The Quantity of a good that producers are willing to sell at different prices.

• Equilibrium Price: Where demand = supply.

Example:

• If the price of mangoes increases, demand may fall, but farmers are willing to supply more → potential surplus.

b. Price Elasticity

• Measures how sensitive the quantity demanded is to price changes.

• Elastic Demand: Small price change = large quantity change (luxury goods).

• Inelastic Demand: Quantity doesn’t change much (necessities).

Example:

• Gasoline is inelastic: even if the price increases, people still need it.

c. Market Structures

• Perfect Competition: Many sellers, identical products (e.g., agriculture).

• Monopoly: One seller, high barriers (e.g., electricity supply).

• Oligopoly: Few sellers, interdependent pricing (e.g., airlines).

• Monopolistic Competition: Many sellers, differentiated products (e.g., restaurants).

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📗 2. Microeconomics

a. Consumer Behaviour

• Based on utility maximisation.

• Law of Diminishing Marginal Utility: Each additional unit consumed gives less satisfaction.

Example:

• First slice of pizza = high satisfaction; fifth slice = lower satisfaction.

b. Production and Costs

• Short Run: At least one input is fixed.

• Long Run: All inputs are variable.

Cost Types:

• Fixed Cost (FC): Doesn’t change with output (e.g., rent)

• Variable Cost (VC): Changes with output (e.g., labour)

• Total Cost (TC) = FC + VC

c. Profit Maximisation

• Firms produce where Marginal Cost (MC) = Marginal Revenue (MR)

Example:

• If MR > MC → produce more

• If MR < MC → produce less

d. Externalities

• When third parties are affected by economic activities.

• Negative: Pollution

• Positive: Education

Solution: Taxes (negative) or subsidies (positive)

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📙 3. Macroeconomics

a. Gross Domestic Product (GDP)

• The total value of goods/services produced in a country in a year.

• Measures economic activity.

• Real GDP adjusts for inflation.

Example:

• If nominal GDP grows by 5% and inflation is 2%, real GDP = ~3%

b. Unemployment

• % of the labour force actively looking for jobs but not employed.

• Types:

  • Frictional (transition)

  • Structural (skills mismatch)

  • Cyclical (due to economic downturn)

c. Inflation

• Rise in general price levels.

• Measured by Consumer Price Index (CPI)

Causes:

• Demand-pull: Too much money chasing too few goods

• Cost-push: Rising production costs

Example:

• If fuel prices rise, transportation and food prices may follow, → cost-push inflation.

d. Monetary and Fiscal Policy

• Monetary Policy: Central Bank (e.g., interest rates, money supply)

  • Lower interest rates → encourage borrowing and spending

• Fiscal Policy: Government (e.g., taxes, spending)

  • Increased government spending → boosts demand

Example:

• During COVID-19, many countries used fiscal stimulus (cash payments, aid programs) to boost demand.

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📒 Summary Table

Topic	Key Concept	Example
Demand & Supply	Market price is determined by interaction	Mango price rises → less demand
Elasticity	Sensitivity to price	Luxury watch demand drops with price rise
GDP	Measures economic output	Real GDP accounts for inflation
Inflation	Rise in price levels	High oil prices = cost-push inflation
Market Structure	Different competition levels	Airlines = oligopoly
Policy	Government actions to control the economy	Interest rate cut = expansionary policy

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