Unit 1
Basic Concepts of Economics January 3, 2017
- Positive vs Normative
- Pos. is describing the world as it really is (facts)
- Norm. describes how the world should be (opinion)
- Needs vs Wants
- Needs- basic requirements for survival
- Wants- desires that we seek
- Scarcity vs Shortage
- Scarcity- fundamental problem that the whole world faces
- satisfy unlimited wants with limited resources
- Shortage- quantity demand exceeds quantity supply
- Goods vs Services
- Goods- tangible commodities
- anything you can touch
- Capital- item used in creation of another good
- Consumer- goods intended in final use by contenders
- Ex: grapefruit juice, capital is grapefruit
- Services- Work that is preformed for someone's entertainment
- Factors of Production
- Land- natural resources
- Labor- Work exerted
- Capital
- Human capital- when people acquire skills and knowledge through experience and education
- Physical capital- deals with money and is tools, buildings and machinery
- Entrepreneurship- Risk taking and requires creativity and take lands, labor and capital to operate
- Trade offs opportunity cost
- Alternative that we sacrifice when we make decision
- next best alternative ex: next best choice after high school is college
- Guns and butter
- refers to trade offs that country face when choosing whether to produce more or less of military goods or consumer goods
- 2 types of efficiency
- Productive efficiency- products are being produced in the least costly way
- any point on the PPC
- Allacative efficiency- products being produced are the ones most desired by society
- optimal point on PPC depends on desires of society
- PPC, also known as Production Possibilities Curve
- PPC shows the carious combinations of output a nation can produce at a certain time, given its available resources and technology
- The economy can produce efficiently on letters A, B, and C ; while points A, B, C, and D are ATTAINABLE, point D is being produced inefficiently due to under-utilization, unemployment, recession, famine and etc.
- In the other hand, point E is UNATTAINABLE using the current technology and also due to economic growth
Demand and Supply
- Demand- quantities that people are willing and able to buy at various prices
- Law of demand- inverse relationship between price and quantity demanded
- Keep in mind that Δ= Change
- Causes of Δ in demand
- Δ in # of buyers(population)
- Δ in buyer's taste(advertising)
- Δ in income (normal or inferior goods)
- normal goods- increase in income causes increase in demand
- inferior goods- increase income causes fall in demand
- Δ in the price of related goods
- EX:
- substitute good- substitute for coke is sprite
- complimentary goods- plain hot dog but with mustard or ketchup
- Δ in expectations(future)
- Supply- quantities that producers or sellers are willing and able to produce/sell at various prices
- Law of supply- there is a direct relationship between price and quantity supply
- Causes of Δ supply
- Δ in # of sellers
- Δ in technology
- Δ in cost of production
- Δ in weather
- Δ in tax or subsidies
- subsidies- gov't $ given to for ex. farmers
- Δ in exceptions
- Price will always be on y-axis
- Δ in price will always be downward
- IF YOU ARE TOO LAZY TO READ, THIS IS FOR YOUUUUUU!
Elasticity and Demand January 11, 2017
- measure of how consumers act in Δ in price
- Elastic Demand
- Demand that is very sensitive to Δ in price
- Products is not necessity
- there are available substitutes
- Always greater than 1, E > 1
- Inelastic Demand
- Demand that is not very sensitive in demand in price
- Products is a necessity
- There are few or no substitutes
- E < 1
- Unitary Elastic
- E = 1
- Calculations
- quantity: New quantity - old quantity / Old quantity
- Price: New price - old price / Old price
- PED: % Δ in quantity / % Δ in price
Supply Equations January 13, 2017
- Equations used when calculating
- TFC + TVC = TC
- AFC + AVC = ATC
- TFC / Q = AFC
- TVC / Q = AVC
- TC / Q = ATC
- New TC - Old TC = Marginal cost
- Note that you can manipulate the equations algebraically to find other variables
- Fixed Cost- a cost that does not change no matter how a good is produced
- Variable Cost- a cost that rises or falls depending upon how much is produced
HAVE A TEST OVER UNIT UNO TOMARROW?!? NO PROBLEM!!!
