Cambridge International as and a level Economics Ebook

SUMMARY
Chapter 1: Basic economic ideas and resource allocation
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Chapter 2:
The price system and the microeconomy
AS Level
Learning objectives
On completion of this chapter you should know:
■ 
what is a market and eff ective demand in a market
■ 
what is meant by demand and supply
■ 
what is meant by individual and market demand and 
supply and how demand and supply curves can be derived
■ 
what factors influence demand and supply
■ 
the meaning of elasticity
■ 
price, income and cross elasticity of demand – what each 
means, how they are calculated, what factors aff ect them 
and the implications for revenue and business decisions
■ 
price elasticity of supply – what it means, how it is 
calculated, the factors aff ecting it and the implications of 
how businesses react to changed market conditions
■ 
what is meant by equilibrium and disequilibrium in a market
■ 
how the interaction of demand and supply leads to 
equilibrium in a market
■ 
how changes in demand and supply aff ect the equilibrium 
price and quantity and how this analysis can be applied
■ 
the diff erence between movements along and shift s of 
demand and supply curves
■ 
the meaning of joint demand and joint supply
■ 
how the price mechanism works with respect to rationing, 
signalling and the transmission of preferences
■ 
what is meant by consumer surplus and producer surplus 
and their significance
■ 
how these are aff ected by changes in equilibrium price 
and quantity.
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Introduction
Consider these newspaper headlines:
‘Cotton hits 10 month high on global demand expectations’ 
(Reuters, 6 March 2013)
‘Damage to rice crops sparks price rise fears in Pakistan’ 
(
Express Tribune
, 5 September 2013)
‘Coff ee prices may rise 15% on supply woes’ (
Business 
Standard
, India, 3 July 2013)
‘Crash of tea market takes fortunes with it’ (International 
Herald Tribune, 10–11 January 2009)
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