Equilibrium - the point in which the supply curve intersects with the demand curve
Thinking at the margins - deciding whether to add or subtract one additional unit of some resource
Production Possibilities Graph (PPG) - graph that shows alternative ways to use an economy’s resources
Four Key Assumptions (PPG)
Only two goods can be produced
Full employment of resources
Fixed resources (factors of production)
Fixed technology
Efficiency - using resources in such a way to maximize the production of goods and services; increases profits
Under-utilization - opposite of efficiency; using fewer resources than an economy is capable of using, leads to a decrease in profits
Price ceiling - when the government puts a legal limit on how high the price of a product can be; creates a shortage
Example: Rent control
Excess supply - occurs when quantity supply is greater than quantity demanded; will result in a surplus
Surplus - producers have inventories that they cannot get rid of
Price floor - lowest legal price a commodity can be sold at; creates surpluses
January 13, 2017
Total Revenue - total amount of money a firm receives from selling goods and services
Marginal Revenue - additional revenue from selling of additional units of a good
Fixed Cost - a cost that does not change no matter how much of a good is produced
Example: salary, rent, mortgage, insurance
Variable Cost - a cost that rises or falls depending upon how much is produced
Calculations
Total Fixed Cost + Total Variable Cost = Total Cost
Average Fixed Cost + Average Variable Cost = Average Total Cost
Total Fixed Cost / Quantity = Average Fixed Cost
Total Fixed Cost = Average Fixed Cost x Quantity
Total Variable Cost / Quantity = Average Variable Cost
Total Variable Cost = Average Variable Cost x Quantity
Total Cost / Quantity = Average Total Cost
New Total Cost - Old Total Cost = Marginal Cost
Output = Quantity
January 11, 217
Elasticity of Demand - a measure of how customers react to a change in price
Elastic Demand - demand that is very sensitive to a change in price; product is not a necessity; there are available substitutes
Greater than 1 (E > 1)
Examples: Steak, fur coats, soda
Inelastic Demand - demand that is not very sensitive to a change in; product is a necessity; there are few to no substitutes
Less than 1 (E < 1)
Examples: Gas, insulin
Unitary Elastic
E = 1
Calculations
S1: Quantity = New Quantity - Old Quantity / Old Quantity
S2: Price = New Price - Old Price / Old Price
S3: Price Elasticity = % Change in Q / Change in P
January 04, 2017
Factors of Production
Land - natural resources
Labor - work exerted
Capital
Human capital - when people acquire skills and knowledge through experience and education
Physical capital - money, tools, buildings, equipment, machinery
Entrepreneurship - risk taker, innovative
Trade-offs - alternative that we sacrifice when we make a decision scarcity leads to trade-offs Example: farmer who plants tomatoes in one spot cannot produce corn in the same spot
Opportunity cost - the most desirable alternative given up as a result of a decision
Guns or Butter - trade offs that the government makes when choosing whether to produce more or less military or consumer goods
January 03, 2017
Macroeconomics - the study of economics as a whole
Inflation, minimum wage, international trade
Microeconomics - the study of individual or specific units of the economy
How households and firms make decisions and how they interact in markets
Looking at the trees and not the forest
Positive vs Normative economics
Positive economics - the attempt to describe the world as is, very descriptive and it collects and presents facts
Normative economics - attempts to prescribe how the world should be, opinion based
Needs vs Wants
Needs - basic requirements for survival
Wants - simply desires
Scarcity vs Shortage
Scarcity - most fundamental economic problems facing all societies, unlimited wants with limited resources
