how demand and supply relates to our life Michael Chu 5y

Economics hadn’t been an interesting subject to me before I took Ms. Vyna’s economics class. She inspired me that economics can be very close and useful to our reality, and the complicated theories can also apply to my daily life, especially demand and supply.
Demand, by definition, is the quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period. The Law of Demand simply states that as the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus. The quantity of demand affected by many factors such as level of income, prices of substitutes, expectations of customers and taste, preference of consumers.
As I’m a basketball player, basketball shoes are a necessity for me. One of the stronger factors that push me to buy Nike’s shoes is the solid advertisements of them. When two shoes have exact the same functions, by the advertising and having superstar endorse for the NIKE shoes, people are more willing to buy it instead of the no brand shoes. So if the products fit in with consumers taste and preference, it will lead to an increase of the demand.
Another important factor affect the demand is the prices of the substitutes. When the price of the substitutes falls, people are more willing to purchase the substitutes with the same features at the lower price, so it will cause a decrease of your product’s quantity demand. For example, the Adidas are having a big sale, all the basketball shoes are 20% off, I’m willing to buy it instead of buying Nike’s basketball shoes at an expensive price.
In conclusion, Economics can be very understandable and useful to our life. After studied for demand and supply theory, it help me understand how the prices of the products changed, so I can be more wiser on my money management.

Supply and Demand

The concepts of Supply and Demand as implemented in the real life.

By Jargalan Batsaikhan
Class 5Y

Economics is the study that deals with the best possible (efficient and simple) allocation of scarce resources. It is the branch of social science that deals with the production and distribution and consumption of goods and services and their management. In the following essay, I am going to be talking about how economic concepts such as supply and demand affect our lives because the understanding of economics is crucial to our modern society. I will talk about real life examples such as increase in the price of gasoline and the ensuing increase in the price of goods and the effect they have on the society.

Before we move on to discuss applications of economics in life, we have to expand on the terms that will be used such as demand, supply, law of demand, and law of supply. Demand is defined as the amount of specific good or service that a consumer is willing and able to buy at a given price at a given time period, ceteris paribus (i.e. Latin for all things remaining constant.) When there is no willingness or ability to buy a good, a person cannot buy it because without any desire for the product one wouldn’t want to waste resources by purchasing it. Furthermore, when there is no financial ability to back up one’s wants or needs, one cannot purchase goods that are needed. These two ideas are interdependent and cannot exist separately. Quantity demanded is the amount of goods that people are willing and able to buy at a particular price; however, Qd is not the same as the quantity that people would like to consume. There are two types of activity that can occur on demand curve and they can be differentiated by a change in quantity demanded and a change in demand itself. Movement along the demand curve is caused by a change in the quantity demanded which itself is caused by a change in price. The second activity possible is a shift in demand; it is caused by a change in demand, which in turn is caused by non-monetary factors such as population size, taste, and preferences, complements, substitutes and income level. The Law of Demand holds that all things remaining constant, the quantity demanded will increase as the price of the good decreases and decrease as the price rises. The relationship between price and quantity demanded is inverse though not necessarily proportional. The second part of the concept of supply and demand is supply. Supply can be defined as the amount that producers are willing and able to produce and offer for sale at a given price at a given time period, ceteris paribus. The relationship between price of a good and the amount supplied of that good is called the supply relationship. Supply is shown by the supply curve. The quantity supplied is the total amount of goods that all producers are willing and able to supply to the market at a given price at a given time. The kinds of activity that occur on the supply curve are the same as the ones that happen on the demand curve and they happen for a number of reasons. The Law of Supply is the total opposite of the Law of Demand because according to the Law of Supply as the price of a product increases the supply of that product increases. However, as the price of a product decreases, the supply decreases too.

As I have mentioned before, economics’ concepts such as supply and demand have a significant role in our everyday lives. A good example of the application of the concept of supply and demand is the demand for gasoline. As the price of gasoline goes up, the prices of other goods are also affected because as gasoline price increases, it indirectly affects almost all areas of economy. All goods are transported through either air, land, or sea and the vessels used to transport them are operated using gasoline and when the price of gasoline increases, the cost of transportation or cost of production for the producers if they transport the goods themselves increases. When the cost of production goes up, the producers cannot produce as much as they did before gasoline became more expensive and if they want to keep the supply stable then they would have to compensate for the increased cost of production by increasing the price of their goods. This takes care of the problem for the firms; however, it creates more problems for the consumers because then they would have to spend more money to buy necessities such as salt, sugar, oil, et cetera. This in turn increases the opportunity cost for the consumers because now they cannot spend as much money as before on goods that are not essential to survival.

ECONS Elasticities Size (5z)

Elasticity, like demand and supply, is always happening around us and an important factor that keeps the economy going. Elaticitry is a measure of responsiveness. It measures of how much something changes when there is a change in one of the factors that determines it. An easy way to understand this is by imagining a elastic/rubber band, when you apply force in strenching the elastic band, the elastic band will usually be longer, depending on the magnitude of the force applied. Since this is suppose to be a economic entry, i will be taking about the elasticity of demand, what is the elasticity of demand? Elasticity of demand is a measure of how much the demand of a product changes when there is a change in one of the factors that determine demand. There are three types of elasticity of demand and today i will be taking about the Price Elasticity of Demand [PED].

The price elasticity of demand is a measure of how much the quantity demnaded of a product changes when there is a change in the price of the product. If the above sentence isn't self-explanatory enough, just think it this way: then length of the elastic band is the demand, the longer the elastic band after strenched, the smaller the demand. The amount of force applied will be the amount of change of price of the product. (By the way, this example only works when the price of the product increases, since 'force' cannot be negative when price decreases.) There are two types of elasticity of demand, the inelastic demand and the elastic demand. A product is said to be demand inelastic if the quantity demanded of the product does not fall as much as the increase of price. A product is said to be elastic if the demand quantity of the product decrease way more than the increase in price.

For example, in Singapore, the sale of iphone is so popular, that almost every 1 out of 10 people of all age group owns an iphone. And for those reading this post AND owns an iphone, lets be honest, im sure you all will still buy yourself an iphone if it costs an extra hundred dollars. The sales of iphone is Singapore can be said to be really demand inelastic. Lets now look at the sales of iphone in another country, Japan. In Japan, the sales of iphone is absolutely terrible and companies such as Softbank and offering a FREE iphone with every two- year contract. This is because Japan has so many of its own home-made brand, iphone just isn't stylish enough for them. The demand for iphone in Japan can be said to be very elastic.

Prices of the same good may be different in different places of the world. Even in Singapore, it is the same, a product will be much cheaper in a certain area where the locals have less demand for it, so step of your comfort zone and happy hunting.


Yim Si Ze (5z)

The mind really can move things! ian lee 5Z

Very often , a good has a certain amount of elasticity in that when the demand of the good changes, the equilibrium price would then shift according to the elasticity of the good. However, there is an interesting occurance when exotic goods or special goods are being put on the market. An example of this can be seen in different types of art sold during an art auction,where the equilibrium is not defined for that one good as the price is determined by whoever is buying the painting and feels that it is a reasonable price for the good. Thus, when the price changes the demand can stay the same, the price elasticity is considered 0. 

But can we immediately say that food is definitely elastic? I would put certain foods to have interesting elasticities as they behave in the same way as paintings. For example, we can consider exotic foods to behave with around the same price elasticity as something like an expensive painting as people would buy them regardless of price as the value or the utility derived will vary from person to person. 

With this in mind, the question of just how much the price can rise for an item without the demand dropping for items like these. If the price elasticity of a painting is 0, then how does a market come about for these things? How do we even come to an agreement of the price? Is there a price cap to these things, or even a minimum price? My opinion on this is that psycology plays a big part in this fluctuation of prices in a big way, especially for these kinds of goods. Apparently we havent learnt anything on this so im just gonna take a whack at it. I would think that what we think of a good has alot to do with how elastic a good can be, and that it is influenced by our minds. 

So in essence everything we do can actually influence everthing in economics, and what we are thinking today could end up on the charts tommorow!

Are Prices "Correct"?

From the first note that was played, I was overcome by a feeling of serenity that wrapped itself around me. As the mellifluous sounds of the violins and cello filled the air in the concert hall, everything else melted away and in that present moment, I felt a sense of pure, unadulterated enjoyment. The last piece by Schnittke was extremely difficult to listen to, though, and a sense of relief broke through when the mood of the piece was finally lifted up by the tinkle of the piano. It was a good end to the work week.

But not everyone was as mesmerized as I was. Halfway through the Shostakovich piece, the T'ang quartet was joined by an instrument of a more human quality - light snoring some rows back. A child keeps asking his mother, "Xianzai jidian le?" (what time is it?). And so this illustrates one of the determinants of demand, "taste and preferences" or, stripped of economic language, "one man's meat is another man' poison".

That concert was performed for free (lay language meaning no money was paid, though the opportunity cost was definitely high due to the subsidy), but there were many other forms of entertainment which I paid much more for in the past but never quite enjoyed as much. In the market economy, we hail the efficiency of the price mechanism in guiding resource allocation - but are we giving too much credit to the invisible hand? If I enjoyed the free T'ang Quartet performance much more than I enjoyed, say, a night out at St James (which usually leaves me more exhausted than relaxed) where the cover charge is $15 - then are prices "correct" in measuring our satisfaction or utility?

I am halfway through a book and the writer reflects,

The high point of my life, the thing that brought me fame and acclaim, the thing I was by far the best at, paid less than thirty thousand dollars. But I walk a runway, which requires no skill, and I am paid fifteen hundred dollars for a few hours' work. Then I spend only two years studying business, and suddenly the marketplace says I am qualified to earn $120 000 a year. Four times as much! Without a drop in business experience! Was I really that different a person? It's absolutely wrong to think money is an objective measure of a person. Absolutely wrong. What the market values is arbitrary. Dance was my passion. Business school and runway work were whims. The market says my whims are far more valuable than my passion. But the truth is, what I was striving for in dance, you couldn't put price tag on.

I have been doubting whether wages are "correct" for some time now. As a tutor of a class, you are paid to handle administrative issues of the class, handle paperwork, take note of absences and late-coming, conduct CAS interviews, write up reports of students, etc etc the whole year round. I earn the same amount giving a few hours' work for completing an article to be sent to my editor. Am I overly compensated by the marketplace for a piece of writing that I already feel an immense level satisfaction when crafting? Didn't economic theory dictate that one is supposed to earn less in jobs that give high non-wage benefits because the supply of people willing to work for that occupation is high?

How reliable is the price mechanism?

Life

Economics is a brand new subject to me.

If you are reading my blog and find it really stupid, I am sorry about it. This is my first time doing an 'econs blog posting'. I will try harder to make it better for the next blog. PRomise!

Blogging is like a journal to me. It's an intimate place where I can express all my thoughts and feelings. So, econs blog posting..i would conclude that it's a place for me to express whatever i feel about economics and how it relates to my real life. Every little thoughts that i haVe for econs.

Wow, everyone is doing it in such professional way. I din expect there will be graphs in a blog too. Should I use proper english for blogging as well? I hope to be as genuine as possible.

Well, up to this point..I am still not quite sure about what is economics really all about. But i formed a first image of ECONS---what it means to me personally, after the first lesson with ms. Vyna. I see economics more than a subject. Having econs class is like learning about life lesson. I truly believe it is all about LIFE in economics because the basic and most fundamental concept that i learnt from the first lesson is SCARCITY. Because of the limited resources in this world, people are forced to make a choice. Wise choice. How to produce? What to produce? FOr whom to produce?

I truly fall in love with this even it is just a basic n simple concept! That's the reason that makes me wanting to learn more and more about economics. THat's the reason I am still pressing on to read up ahead of class...when the words in the economics text book seem to know me but i do not know them!
Isnt't it like a life lesson to me? In life, it's all about decision making! Making wise choices. Using the limited resources(eg. time)that we have and get out of the most.
What to eat for tonight's dinner?
Who to spend time with this weekend?
Should I study or not tonight?
What to wear later?
What CCA should I join? How many?
What subjects to choose?
And then...every choice behind it, there is an opportunity cost. THe consequences of choosing it and the price that you have to pay for choosing it.

Today I learnt something new again. I gained an insight.
It makes me think that learning economics helps me see things and problems beneath the surface.
Today in class we talked about the application of demand and supply curve. It's About what can government do to the effects of price floors. THe pros and cons of of increasing demand by advertising or through import substitution. Ms vyna was trying to illustrate to us what is' import substitution'. I particularly like a question that ms Vyna raised up to us. Let's say Vietnam is producing alot of rice. They have surplus of rice. THey do not need to buy it from other country anymore. The growth of trading partners will decrease. So what are they going to do with the surplus? THe country can either choose to keep it, sell it or discard it. What about selling to a country that is much poorer? THe country that desperate for rice like Africa?
It looks like Vietnam is helping them...but, is it really true??????????
What about the producers of the rice in Africa? Is this beneficial to them?
It will be a great disadvantage to them because there are lots more competition from the outside of the country.

It makes me pondering about life.
In life, there are many things we choose to do...seem to be out of good motives, but is it really so?
We think we can help but actually it turn out to be another way round.
Or maybe we think that there is a 'short-cut' we can go to get to the same destination(it takes less effort for ourselves) but in the mean while it could cause a lot troubles to others(without we ourselves realising it).
As we grow older, things become more complicated.
When we give money to the beggars along the street, are we helping them or destroying them?

thanks for your patience in reading my blog.
Here's come to end of my sharing.
I hope i will gain more insights as i venture on the journey of learning economics. And Hopefully i will get to relate to my own life and share more with you!

See you next time!

Monopoly

I’m sure most of us have played the game monopoly before- the one in which we try to build and gather the biggest assets whilst retaining as much cash as possible. Though in real life, monopoly is the same, just on a much bigger scale.

What is a monopoly in economic terms? Well, it is a situation in which a firm or an individual has the power to control the market for a certain good or service, ceteris paribus. That means that this firm has the power to exploit prices and services so as to raise as much profit as it can, just like how in monopoly, people keep upgrading their houses to something really expensive.

How do monopolies come about? Usually, this happens because it is the only producer of a certain good or service, or because the demand for a particular brand of goods is very high. In the 20th century, Ford Motors had a monopoly on the car industry, because only they had the technology to create cars at such a quick level. It also owned branches that produced steel for cars parts, thus it could keep costs low and profits high. This would lead to it becoming a monopoly because other car manufacturing firms had to purchase materials from them.

However, having a monopoly in the economy can be bad news for infant firms or small firms. This is because of barriers. Once a firm has a monopoly, it would definitely want to continue it’s hold on the market. However, there are many other firms that produce the same good, or want to produce the same good. To stop this, the big firm imposes barriers to entry. Barriers to entry would include cost, research and development, advertisement and predatory pricing. The list is not exhaustive. Usually, the firms that are monopolistic are very profitable and have earned economies of scale. This is vital to the firm and dangerous to smaller and/ or infant firms who have not earned it.

Monopolies are also inefficient for consumers. Monopolies receive very little competition. As a result, they are able to charge exorbitant prices whilst still maintaining high demand for a good or service. Their firms also usually provide poorer and more inffecient service. Most also lose the initiative for innovation. They become like this because they do not have to compete. Imagine this. Picture Student A- a bright student who does well in examinations because of his intelligence and dilligence. However, after a while his success gets into his head. He starts to rest on his laurels and stops working hard. Besides that, he also becomes rude and arrogant towards his peers. A monopoly is something like that.

However, some people argue that monopolies do have some benefits for consumers. One tactic that monopolies employ would be predatory pricing. For example, two airlines; Rose Air and Jack Airlines are the only airlines that fly to London. Rose Air is a big and profitable firm but Jack Airlines is not as successful. However, there is a recession and many people are choosing not to fly to London. As a result, Rose Air decides to slash its prices for London Air tickets for a short period of time, so that it is even lower than Jack Airline’s tickets. This increases demand for Rose Air tickets and the demand for Jack Airlines tickets. Rose Air will not suffer as much as Jack Airlines because it can rely on bigger profits. Also, Rose Air only slashes its prices for short period of time. This benefits consumers because they can enjoy cheaper flights during a recession.

Also, some economists argue that monopolies, though inefficient, are not totally dangerous. This is because they can be controlled by government regulations. Governments can control monopolies by taxing them very high amounts. They can also give smaller or infant firms a head start with subsidies and grants.

The direct opposite of a monopolistic market is a market with perfect competition. This occurs when there are many small firms, all producing homogeneous goods. This means that no single firm has influence on the market. This is usually very rare. The only industry closest to perfect competition would be farming and agriculture.

Monopolies are also very similar to countries which have all their industries nationalized. This is because these countries face sparse or no competition at all and goods and services, though cheap are usually not of good quality. Service is also often slow and inefficient as everybody uses them.

In conclusion, like all market systems, monopolies do have their own pros and cons. However, in this case, monopolies do have more cons than pros. Nonetheless, it is not an unsolvable problem. It is up to the consumer to decide whether or not he or she wants to purchase goods or services from that firm and it is also up to the government to control it or not.

Demand and Supply (Kai En, 5W)

Economics is alive, everywhere and relevant to all our lives. We apply its concepts and theories into our lives to make sense of how the market system works, just like how we can apply the theories of demand and supply into what we are going through right now. Most especially now, as we are living in interesting times since we are currently going through a global recession. As Economics students, we take on this subject and learn that the most fundamental and the most powerful of all Economics tools is actually the concept of demand and supply.

DEMAND

First off, we begin with understanding the definition of demand and the law of demand. Demand is a relation showing how much of a good consumers are willing and able to buy at each possible price during a given period of time, ceteris paribus. The Law of Demand states that the quantity of a good demanded is inversely related to its price, ceteris paribus. This is illustrated in the diagram below.



As you can see, when the price of a product falls from P1 to P2, the quantity demanded rises from Q1 to Q2, thus proving the Law of Demand.

When does demand come in to our lives, then? It comes in every time you try to purchase something. My brother, for example, wanted to buy an Xbox when it just came out. However, owing to it's sky high prices, he found it difficult to buy it, thus he waited as the price began to fall and then finally bought it. He told me it was "not worth the pain" when the prices were high. Indeed, if prices of goods were too high, consumers would find the good very unappealing and some of them may not have the ability to buy it either, thus the quantity demanded for the good falls. However, if prices were lowered, the quantity demanded for the good would rise because of the cheaper prices, thus there is a movement along the demand curve.

The next concept we can apply and understand is the difference between the shift of a demand curve and movement of the demand curve (as illustrated above). The shift of a demand curve is caused by non-price determinants, which are factors like advertising, tastes/preferences/trend, population, substitutes, complements and income level. Say, if your wage per month was around $1000, then it would be difficult to support a family and even more difficult to be able to afford many different types of goods, or goods that have higher prices. If the wage level was higher, to say, $2000 there is the ability and willingness to pay, and can boost the demand for the particular product, as illustrated in the diagram below.



The price of the product remains unchanged, while the demand curve shifts to the right, from D1 to D2. Another example is, substitutes. When we say substitutes, we are talking about a good that can replace another. A good example would be coffee and tea. Many consumers demand either or both of them and say, if the price of coffee were to rise, then the demand for tea may rise because more people would prefer to drink tea as the price of coffee is high. Preferences, as like for me, I drink "Columbian coffee" and find its aroma and taste extremely satisfying for me. I have previously tried a brand called "Blend 117" but it does not appeal that much to me as before because it leaves a rather bitter aftertaste, unlike the "Columbian coffee". Even my brother and his wife think the same as I do.

SUPPLY

Next, I will touch on the definition of supply and Law of Supply. Supply is a relation showing how much of a good producers are willing and able to sell at various prices during a given time period, ceteris paribus. The Law of Supply states that the quantity of product supplied in a given time period is usually directly related to its price, ceteris paribus. This is illustrated in the diagram below.



As the price rises from P1 to P2, the quantity supplied increases from Q1 to Q2 as shown above, thus proving the Law of Supply.

How applicable is this in our life? Though this concept is supposed to make you think in the shoes of a producer, there are also ways we can apply it in real life, as this is related to demand as well. Prices are higher so that producers can earn more profits, and thus for them it is a good opportunity. However, these higher prices are then passed to consumers who may not have the ability to, or are unwilling to pay for high-priced goods. It can even cause inflation in the market economy. This is just like the inflation period during the early 2008, where prices of oil, rice and lots of necessities went spiraling up, causing a lot of unrest and discontent in the economy.

However, there is a form of high-priced goods that many rich consumers are willing to pay for, and they are called veblen goods. They are goods with snob appeal. A good example would be Rolls Royce, where the higher the prices, the higher the quantity demand for this good and the higher the quantity supplied.

There is a difference in the shift of a supply curve and movement along a supply curve (as discussed and illustrated above). The shift of a supply curve is caused by non-price determinants, like changes in technology, number of producers in the market, price of other related goods, expectations in future prices and the weather. Take for example, technology. Nowadays the modern technology has been able to move us forward and able to allow economic growth. Modern technology helps in farming and allows farmers to harvest their crops in a more efficient manner, and fertilizers which allow their crops to grow better as they are then able to take it to the market to sell. However, if the weather has been bad or if there was a form of natural disaster, it could destroy crops and causes the supply curve to shift to the left, as shown in the diagram below.



One example of prices of other goods is complements, say for example tea and sugar. If the price of sugar rises, the supply of tea may decrease as people find that sugar is much more expensive and may want to buy less to drink their tea, thus decreasing the supply of tea. This is also applicable to the above supply diagram, as S1 shifts left to S2 showing a reduction in supply.

As I have covered over in my response and introduction, Economics is alive, and is in every part of our lives. We study demand and supply not just for passing our exams, but to also answer the many Economic questions that boil down to the workings of demand and supply. It is not a difficult concept as once you have grasped the point of it, it remains with you for a long time, and you will eventually see that it is an applicable concept wherever you go. Especially when I watch the news, I find it much easier to understand the reports that are related to Economics as I have studied it before, and understand the concepts.

Since this concept is the most basic and fundamental concept, it is even more important to properly master it!

Price elasticity of demand in CaBi shop.

We all have studied about how demand curve act to reflect the relationship between prices and quantity demanded. However, have we ever paid attention in the shape of the curve? Is it flat or steep?, and how does it affect to the alteration between price and quantity demanded?. If a swimsuit shop rises its price up to 7%, then what’s about quantity demanded? , It will base on how consumers respond. According to the responsiveness of the quantity demanded when there is a change in price, holding other factors constant, it is defined as a concept of price elasticity of demand ( PED).

The value of PED is greater than 1, it is known as elastic demand which causes a large fall in quantity demanded when price is up. However, if PED is smaller than 1, it will be inverse that causes only a little change in quantity demanded.

Now, I would like to mention about my family business, in specific, about my mother’s shop. She is a director of CaBi shop which produces and sells swimsuits and eurhythmics stuff in Vietnam. In each year, she has to separate into 2 period of time. First period is from May to September, and another is from October to April. In the first period, that is on summer holiday in Vietnam so that there are many families tend to buy swimsuits, and enjoying relaxing days on beaches or swimming pools together. According to first period, in 2008 , my mother rose up the price for swimsuits which was from 250,000 VND to 290,000 VND. After that, there was a fall in swimsuits demand from 87,000 to 77,500.Thus a 16% increasing in price caused a 11% fall in the quantity demanded, and inelastic demand appeard in this condition.

PED = %change in Qty Dd/ % change in P = 11%/16% = 0.7 ( PED <>

Next, from October to April, almost all consumers had to return to their works, and student started their semester 1 in school. Therefore, demand for swimsuits was really narrowed, and it turns into elastic demand. As the same price with previous period, yet there was a fall in demand from 87,000 to 70,000 which caused a 45% fall in quantity demanded.

PED = %change in Qty Dd/ % change in = 45%/16% = 2.8 ( PED > 1 )

In fact, around my house, there are a lot of shops from outstanding brands such as Nhu Lan, Anh Thu, Ly Ly and so on. Hence, to my mother, she has to face with many competitors, and to consumers, there are a large amount of substitutes. For example, a bikini in Nhu Lan shop is 150,000 VND with a good quality, and a bikini in CaBi shop which is my mother’s shop is 180,000 VND. Thus, when the price of my mother’s swimsuits is at that much, it is due to a big fall in quantity demanded.

Last but not least, I think that being aware of the alteration of demand curve through its slope, it will help my mom acknowledge more about desire of consumers. Moreover, this is also a chance for me to know more about my mother’s business, how has it been developing over time? as I never care about my parents business, and even I am not keen on business.

Elasticity affects labour demand and minimum wages

Have you ever wondered why during this recent recession starting 2008, some groups of people such as teachers and CEO's of top firms have NOT lost their jobs? And the fact that a change in the government policy of minimum wages have different outcomes on different groups? This can all be explained using the economic concept of elasticity.

Firstly, what is elasticity? To those who have not done economics before, it may be a little bit confusing. Imagine a rubber band that is being stretched. Some rubber bands are easier to stretch than the others despite the fact that you are using the same amount of force, right? The economic concept of elasticity is similar, except that the force is now the price and the extention if the rubber band represents the change in quantity demanded for the good, illustrated by the gradient of the demand or supply curve. In economics, elasticity is defined as a measure of responsiveness of the quantity of a product to a change in other nominal factors such as price and income level, ceteris paribus.

Although there are many types of elasticities such as price elasticity of demand and income elasticity of supply, the basic formula used to calculate this value is general:
%change in quantity / %change in nominal factors.
Although these values are always negative as the demand curve is downwards sloping, we always assume that this value is postive.

Coming back to the topic of how elasticity affects labour demand and minimum wages, most measures of elasticity fall under the category of being inelastic or elastic instead of being perfectly inelastic, perfectly elastic or unitary elastic - products that have such elasticities are almost impossible to find although some may be close to it. Jobs are no exception when it comes to being in the category of elasticity - in my opinion, it would be so much better to choose a job that is inelastic. And how do you differentiate between an elastic and inelastic job? As labour is a derived demand, there are 3 simple ways to know.

Ask yourself: Is my job really that necessary in the economy? Or am I indispensible? Teachers and CEO's of top firms, despite the large difference between their average wage levels, have one thing in common - they are both relatively inelastic. In any country in the world, education is usually seen as a primary concern as it is a basic necessity. Without teachers, how would all the children in a country end up in, say, 10 years from now? We'd all be living in a dump and re-living the past with barter trade and deaths caused by the common cold. We wouldn't want that, would we? No. Hence, teachers are necessary. And CEO's you ask? They're just as important but in a different way - they contribute significantly to the economy's trade and economic growth through development and provision of jobs. Other jobs such as factory workers- do you really think that firing several workers is gonna affect the output severely when they can be easily replaced by technology known as the substitution effect? And they are also more likely to be hired due to the aim of a company to grow. So are they as important as teachers? Dont think so. Therefore the fact that they are necessary makes them inelastic. Labour demand for them is unlikely to be affected badly due to a change in price and hence the high demand for them. You didn't hear this from me but having an inelastic job makes it easier to ask for a raise in the minimum wages. Why? Because it is unlikely for a large number of people to be sacked because of a small increase in price and there is a high chance of income increasing and a desirable outcome as it may affects aggregate demand and economic growth in a positive way.

Now take a few moments to ponder about this question: Are teachers and CEO's easily replaced? Maybe, you might say. In my opinion, it isn't. Most people today have big aspirations to own a successful business and be influential and hence want to be a CEO or an entreprenuer, resulting in a large number of people majoring in economics or business studies. What they have forgotten is that this creates derived demand for teachers. Not everyone can be a CEO even though they may have the academic qualifications - its so much harder than that to be successful. Teachers on the other hand will always be demanded but there is a shortage as people do not see teachers in the way that they should be appreciated. After all, where would you be right now if not for your teachers? Governments are way more likely to cut their spending on subsidies rather than education and medical care as it is something irreplaceable in one's life, thus incresing labour demand for them.

The 2 points above show that individual demand for labour is more inelastic than aggregate industry demand for it and hence they have a higher minimum wage, accompanied by the fact that there is a smaller supply of people who have the right qualifications, leads to an even higher minimum wage as an incentive to return the increasing opportunity costs and attract more people. The greater the elasticity of product demand, the greater the elasticity of demand for labour.

Lastly, the elasticity of a worker's wages are determined by the share of labour in the total cost of production. A higher percentage labour is of the total cost, the greater the elasticity of demand. However, as teachers and CEO's are a necessity and have no close substitutes, they are more likely to be inelastic despite their high wages, depending on the changes in output levels and total costs - whether it is really significant and would affect their output greatly although output levels of teachers and CEO's cannot be measured accurately. This affects labour demand as the law of demand states that the higher the price, the lower the quantity demanded. On the contrary, this statement can only be as valid considering that all jobs are the same which is untrue and that is why there is a difference in labour demand and wage levels.

How is this relevant in the life of a working adult? Simple. Consider unionization. As a trade union, your aim would be to increase wages without affecting the level of employment. Assuming ceteris paribus, the more elastic the demand for labour, the lower the union's power to raise wages as they are more likely to be unemployed than receiving increased wage rates. Although this is irrelevant to the topic, it is just interesting to note that trade unions are more likely to organize workers in markets that have inelastic labour as they will get larger gains and be more powerful.

So now that we have talked in detail about labour demand, you ask: what about minimum wages? Government policies have put up a minimum wage so as to protect their workers from being exploited into forced labour. It has been argued that this minimum wage policy has created unemployment as their is a surplus of labour. However, minimal wages are not adjusted according to real terms - meaning taking into account inflation among other things. The unemployment caused by this factor is based on everything else remaining constant except the cost of living that keeps rising with inflation. On the other hand, demand may actually shift rightwards showing an increase in demand but the curve is skewed as although the minimum wage has increased over time with employment, it has been at a slower rate. This increases only the supply of workers, causing a further disequilibrium in the market for labour. In this case, the statement that it is better to have an inelastic job, meaning that quantity demanded does not shift as much as the change in price, is still applicable as you have a stable job and can even ask for a wage increase without actually risk getting fired like a factory worker. Hence, having an elastic job is a good thing - with higher minimum wages and a stable job during the recession.

In conclusion, elasticity plays a major role in our lives although we may fail to recognize this knowledge that has been implanted into our heads without us even noticing. I mean, relating to the concept of scarcity alone, would it be more likely for you to buy coke if the price of pepsi suddenly increased? Based on rationality, you would as the cross-elasticity of demand of pepsi can be calculated and is likely to be elastic due to the abundance of substitutes. Elasticity of jobs also depend upon whether it is a necessity and the percentage of total cost it takes up. Minimum wages are also more likely to be higher by having an inelastic job.

To what extent these factors affect elasticity and hence labour demand and minimum is indeterminable but all I know is that the elasticity of your job is important. Better to be safe than sorry during this recession, right? No, im not promoting teachers in any way but just to say, the next time you see or hear something, think about why it is like that - I can assure you that most of the time, it is related to elasticity. Choose your job wisely is all i can say.

Demand and Supply

When one talks about Economics, there is always one thing that will come across their mind, demand and supply. Almost everything in the economy works by demand and supply, most goods and services in a free-market economy is determined by demand and supply (market mechanism).

So what is demand? Demand is the amount of goods and services that a consumer is willing and able to consume at a given price during a given period of time, ceteris paribus. The Law of Demand states that the quantity demanded for a good/service is inversely related to the price of the good itself, ceteris paribus. However, there are two exceptions to the Law of Demand, namely Giffen goods and Veblen goods where there are nearly no more examples of such goods in today's economy.


Say there is an increase in demand in the price of Macbooks from P1 to P2, this will result in an upward movement in the demand curve and the quantity demanded for a Macbook will move from Q1 to Q2. This is due to the price being more expensive and it is considered not worth it to purchase that product. They will then wait for the price to drop again, say at a sale or when the model is about to be phased out. Should the price decrease again from P2 to P1, the quantity demanded for Macbooks will move from Q2 back to Q1 and the demand curve will shift downwards.

A shift in the demand curve is very different from a movement in the demand curve. A movement in the demand curve can only occur when the price of the good itself changes, whereas a shift in the demand curve is dependent on other factors (not including the price of the good itself). The factors affecting the demand for a Macbook include income, the price of other products, tastes and preferences. Given that people's income have decreased owing to the current financial crisis, this is likely to result in a leftward shift in the demand curve as they now have less money to spend and will spend only on things that are necessary. If the price of a Windows laptop increases, it will lead to a rightward shift in the demand curve where there will be an increase in demand. More people will buy Macbooks as it is cheaper and it has a better value. Consumers may also choose a Macbook over a laptop as it is generally better in terms of looks, operating system and interface, as well as the technical aspects of it. These are all tastes and preferences of a consumer and varies from one consumer to another.

What is the definition of supply then? Supply is the amount of goods and services that the producer is willing and able to produce at a given price during a given period of time. The Law of Supply states that the quantity supplied by producers is inversely related to the price of a good/service, ceteris paribus. The supply curve is upward sloping which is unlike the demand curve i.e. downward sloping.


The change in the price of the good will lead to a change in the quantity supplied as well as a movement in the demand curve. If the price of cars increases from P1 to P2, the quanity supplied will increase from Q1 to Q2 with an upward movement in the supply curve. This is due to a higher price will result in more supplied since they will able to earn a higher profit.

The determinants of supply include the cost of factors of production, the price of other products where the producer can produce instead of the current product, the state of technology and government intervention. A change in any of these factors will lead to a shift in a shift in the supply curve. Nowadays, with the improvements in technology, there is an increase in the supply of clothes since it is now produced by machinery (capital) compared to it being produced by workers (labour).

This is one of the most important concepts in Economics. Without understanding this concept, one will not be able to understand what Economics is all about as this is the primary concepts one learns in Economics. Countless of goods/services in the world are all determined by demand and supply.

Terence Ong
5x

Demand and supply is one such principle that occurs everywhere, from daily necessities such as rice to Veblen goods such as luxury cars. This principle helps us understand why the prices of items increase or decrease. To explain this phenomenon i will use the Anglo Chinese School International popular book store


.Before we began discussing this principle, we have to understand what is demand and supply. Demand is the quantity of a good or service that consumers are willing to and able to purchase at a given price in a given period. Basically, when the price of a product drops, the Quantity demanded will rise.






Supply, on the other hand, is the willingness and ability of producers to produce a quantity of a good or service at a given price in a given period of time. Usually, as the price of the product rises, the quantity supplied of the product will increase.






In our school bookshop, there could be a new economics IB textbook available for purchase at $100; but this book could be optional. Therefore, not all 120 economics students in Year 5 might want to purchase it. The bookshop will order only 40-50 rather then she order just enough for all and later find out no one wants to buy it.Reasons why students would not want to buy the book may be due to the factors affecting demand. Firstly, not everyone could afford the book at a $100 dollars and might just want to photo-copy(income). Secondly, there could be substitutions to the book which might cheaper and thus more affordable and maybe this book is only useful with a complimenting workbook: which might again make the book too expensive for some(the price of other products). Finally, the book might not be as useful to everyone as some might not like the style of the writer and thus might not understand from the book (taste).



If the bookshop is seeing that all the books have been sold and there is a demand for more of them, it will order more of the books and this time, perhaps, also increase the price of the book to increase its profits. However, there might be supply factors preventing the bookstore from ordering more. For example, the publisher might have increased their selling prices seeing the great response and this might prevent the bookshop to purchase more books as now to keep their profits the same, the cost of the book will increase and buyers will then be more reluctant to buy the book. Due to the economic rescission, the cost of raw materials might have also gone up and this the profits made from the selling the book are now decreased.


Demand and supply is not a very difficult concept to understand but it is a very important concept. We can now use this concept and understand how the stock market works and why prices fluctuate in the real world. When demand exceeds supply or vice versa, an excess or shortage occurs. under this situation, market forces will work towards achieving an equilibrium where deamnd meets supply hence eliminating the excess or shortage.In conclusion, many factors affect demand and supply,and they work hand in hand to help us understand this world

HARSH 5W

Elasticity (PED) YAANMENG

In this blog post, I'm going to talk about elasticity, more focused on the price elasticity on demand.

Elasticity is a measure of responsiveness. It measures how much something changes when there is a change in a factor that determines it.
Price elasticity of demand [PED] is the measurement of how much the quantity demanded of a product changes when there is a change in the price of the product. It is calculated by the following equation :
PED = [Percentage change in quantity demanded of the product]/[Percentage change in price of the product]
If the PED is equal to zero, the change in price of a product would have no effect on the quantity of demand.

Normal products have values of PED between 0 and infinity, the range of values are usually split into three categories. Inelastic demand, elastic demand, and unit elastic demand are the three categories and I will be using some examples of our everyday life to show what they mean.

Inelastic goods are goods whose value of PED is less than one and greater than zero. If a product or a good is inelastic, a change in its price would not affect its’ quantity demanded very much. A good example of an inelastic good is oil, in other words, petrol for vehicles. When the price of petrol rises, people who own vehicles would still pay for the petrol because it is a necessity to them to get around. When the price of petrol drops, the quantity demanded for petrol does increase but not by a great deal, this is because a drop in price of petrol does not mean that people would buy cars to use the petrol. Thus we can see how petrol is an inelastic good as the quantity demanded for it is roughly the same even when the price increases or decreases. An example of an inelastic good in my life is the canteen food in ACS (International), no matter how horrid it maybe I would still have to eat it if not I will starve and not be able to pay attention in class. I also have no control over the price of the food, and since there are no substitute canteens in the school, I have no choice but to buy from them regardless of the price.

Elastic goods are goods that have a value of PED greater than one and less than infinity, basically the opposite of inelastic goods. Thus if the price is changed, raised or drops, the quantity demanded would be affected a lot more in comparison with an inelastic good. An example of an inelastic good in my everyday life would be the cyber cafes and lan shops. If the price of the cyber cafes increased from $2 to $2.50 per hour, I would search for other cyber cafes which offer a cheaper price, because there are many shops thus more substitutes to the cyber cafe that raised its prices. However, if the price lowers from $2 to $1.50 per hour, I would still go to that same cyber cafe as it is cheaper.

Lastly, unit elastic demand, these are goods that has a PED value of one. If a good has unit elastic demand, then a change in its price would lead to a proportionate, opposite, change in the quantity demanded for it. I have no idea for an example of this, so I will wait until Ms. Vyna goes through it!