Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

Download Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

Post on 10-Apr-2018

215 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    1/16

    1

    GHANA TELECOM UNIVERSITY

    COLLEGE, GHANA GT UNIVERSITY

    BUSINESS SCHOOLFIRST SEMESTER, 2010 / 2011 ACADEMIC YEARBsc ICT / BTE SSC 351 / BTE L300: ECONOMICS

    SUBJECT: ECONOMICS

    LECTURER: FRED ASAH-APAU

    DATE: MONDAY 13THAND THURSDAY 16TH SEPTEMBER 2010

    OFFICE: C/O OFFICE OF THE DEAN, IT BUSINESS

    VENUE & TIME: AC 4, 10.15 12.15 & AC 15, 19.00 21.00

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    2/16

    2

    DEMAND AND SUPPLY

    The learning objectives:

    Describe a competitive market and think about a

    price as an opportunity cost;

    Explain the influences on demand;

    Explain the influences on supply;

    Explain how demand and supply determine

    prices and quantities bought and sold; Use demand and supply to make predictions

    about changes in prices and quantities.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    3/16

    3

    Markets and Prices

    A market is any arrangement that enables buyers and sellers to get

    information and to do business with each other. An example is the

    world oil market in which oil is bought and sold. The world oil market is

    not a place; but the network of oil producers, oil users, wholesalers,

    and brokers who buy and sell oil. A stock exchange is also an

    organised market for trading in stocks and bonds.

    The price of a product is the amount of money that must be given up in

    exchange for it. This is referred to as the money price. The opportunity

    cost of an action is the highestvalued alternative forgone.

    The ratio of one price to another is called a relative price, and a

    relative price is an opportunity cost.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    4/16

    4

    Competitive Market

    A competitive market is a market that has many

    buyers and sellers with no single buyer or seller

    having the capacity to influence the price. Here,

    producers offer their goods for sale only if the price

    is high enough to cover their opportunity cost.

    Consumers on the other hand also react to

    changing opportunity cost by looking for cheaper

    alternatives to expensive items.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    5/16

    5

    RELATIVE PRICE

    If the price of a can of malt drink is GH 2.00 and that of a cup of chocolate drink is GH 1.00, then the opportunity cost of onecan of malt drink is two cups of chocolate drinks. The normal way of expressing a relative price is in terms of a basket of allgoods and services. That is, comparing the price of a commodity against the average price ofall other goods and services.

    Example of relative price (Px):

    Average price of banana, orange, pineapple, and rasta /corn roll = GH 20.00Therefore, relative price = 60 20 = 2.4.

    Commodity Price (Px)

    GH

    Dates 60

    Banana 30

    Orange 10

    Pineapple 20

    Rasta / Corn roll 40

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    6/16

    6

    Demand

    Demand is the relationship between the price of goods and services and the amount

    that buyers want to purchase (quantity demanded) during a specific period of time. The

    law of demand states that there is an inverse relationship between the price of a

    commodity and the quantity demanded. If you demand something, then you

    1. Want it,

    2. Can afford it, and

    3. Plan to buy it.

    Wants are the unlimited desires or wishes that people have for goods and services.

    Scarcity guarantees that many/most of our wants will never be satisfied. Demand reflects

    a decision about what which wants to satisfy.

    The quantity demanded of a good or service is the amount that consumers plan to buy

    during a given time period at a particular price. However, it should be noted here that the

    quantity demanded is not necessary the same as the quantity actually purchased.

    Occasionally, the quantity demanded exceeds the amount of goods and services

    available. With this, the resultant effect is that the quantity actually purchased is less than

    the quantity demanded. The quantity demanded is therefore measured as an amount per

    unit of time.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    7/16

    7

    Demand Continued

    Many factors influence the buying plans of individuals,

    households, and businesses. One of such factors is price.

    If all other factors remain constant, the law of demand

    states that Other things remaining the same, the higher

    the price of a good, the smaller is the quantity demanded;

    and the lower the price of a good, the greater is the

    quantity demanded. Why does a higher price reduce the

    quantity demanded?

    Substitution effect

    Income effect

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    8/16

    8

    Substitution Effect and Income Effect

    Substitution Effect

    If the price of a good rises, and all other factors remaining constant, the

    relative price, i.e., it opportunity cost rises. Consumers tend to be

    swayed towards its substitutes and buy less of that good.

    Income Effect

    When a price rises and all other factors on buying plans remain

    unchanged, the price rises relative to peoples income. Realistically, a

    higher price without a corresponding upward change in income, peoplecant afford what they previously bought, and will naturally reduce the

    quantity demanded of goods and services whose price have gone up.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    9/16

    9

    Substitution Effect and Income Effect

    continued

    Examples of goods with close substitutes: Energy bar and energy drink.

    As indicated above, suppose an energy bar initially sells for GH3.00 and then its price falls to

    GH1.50; consumers will now substitute energy drink for energy bar the substitution effect. As a

    result of budget surplus due to the fall in price of energy bar, people will buy more energy drink the

    income effect.

    Alternatively, if an energy bar initially sells for GH3.00 and the price rockets to GH6.00, consumers

    will shift towards energy drink and buy fewer energy bars the substitution effect. The increase in the

    price of energy bar will create tight budget, and therefore, fewer energy bars income effect.

    Substitute Goods Initial price

    GH

    Current Price

    GH

    Future Price

    GH

    Energy bar 3.00 1.50 6.00

    Energy drink 2.00 2.00 2.00

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    10/16

    10

    Demand Curve and Demand Schedule

    Demand is illustrated by the demand curve and the demand schedule. The term quantity

    demanded refers to a point on a demand curve, i.e., the quantity demanded at a particular price.

    A demand curve shows the relationship between the quantity demanded of a good and its price

    when all other influences on consumers planned purchases remain the same.

    Demand Schedule

    Price

    GH

    Quantity

    Demanded

    A 0.5 22

    B 1.00 15

    C 1.50 10D 2.00 7

    E 2.50 5

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    11/16

    11

    Demand Curve and Demand Schedule

    FIGURE 1: Demand Curve

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    12/16

    12

    Willingness and Ability to Pay

    Another way of looking at the demand curve is as a

    willingness-and-ability-to-pay curve. The willingness and

    the ability to pay is a measure ofmarginal benefit. If a

    small quantity is available, the highest price that someone

    is willing and able to pay for one more unit is high. As the

    quantity available increases, the marginal benefit of each

    additional unit falls and the highest price that someone is

    willing and able to pay also falls along the demand curve.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    13/16

    13

    A Change in Demand (dd)

    Price is not the only factor that influences demand. Any

    change in other factors will bring a change in demand.

    Original Demand Schedule New Demand Schedule

    Price/bar

    GH

    Qty dd Price/bar

    GH

    Qty dd

    A 0.50 22 A 0.50 32

    B 1.00 15 B 1.00 25

    C 1.50 10 C 1.50 20

    D 2.00 7 D 2.00 17

    E 2.50 5 E 2.50 15

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    14/16

    14

    An Increase in Demand

    FIGURE 2

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    15/16

    15

    Factors Influencing Change in Demand

    1. The price of related goods A substitute is a commodity that

    can be used in place of another good. A complement is a

    commodity that is used in conjunction with another good.

    2. Expected future prices

    3. Income Increase in income will result in increase normal goodand a fall in demand forinferior good.

    4. Expected future income When income is expected to increase

    in the future, demand might increase now.

    5. Population

    6. Preferences Demand depends on preferences. Preferencesdetermine the value that people place on each good and service.

    Preferences depend on such things as the weather, information,

    and fashion.

  • 8/8/2019 Ghana Telecom University College 3rd Lecture Presentation Bsc Ict Bte

    16/16

    16

    A Change in the Quantity Demanded

    Versus a Change in Demand

    Changes in the factors that influence buyers plans cause either a

    change in the quantity demanded or a change in demand. A point on

    the demand curve shows the quantity demanded at a given price.

    Therefore, a movement along the demand curve shows a change in the

    quantity demanded. A shift of the demand curve shows a change in

    demand.

    Price

    Quantity

    Increase in

    demand

    DeDecrease in

    demand