Theme 1

• Microeconomics is a study of how to best solve the basic economic problem, which is how to allocate scarce resources given unlimited wants.
• Resources, also known as factors of production, are scarce and can be categorized as capital, enterprise, land, and labor.
• Capital in economics does not mean money, but man-made aids to production such as machinery, tractors, and vehicles.
• Enterprise refers to entrepreneurs or entrepreneurship, which are people who risk takers who innovate and produce goods and services to make profits.
• Land in economics refers to natural land like farmland and rainforests where goods can be produced or goods can be taken.
• Labor in economics refers to human resources, workers that can produce goods and services.
• The world does not provide an infinite amount of these resources, hence they are scarce.
• In a market economy, businesses decide based on consumer demand how to produce and for whom to produce.
• The government can step in and help out in a market economy, but if you can afford it then you get it.
• Opportunity cost is the cost of the next best alternative foregone when a choice is made.
• If the value of our current choice is greater than the value of our opportunity cost, then we have made an excellent decision.
• If the value of our opportunity cost is greater than the value of our current choice, then we have made a bad decision and should allocate resources towards our opportunity cost instead of allocating resources towards our current choice.
• Production possibility frontiers can be used to analyze choices in more detail.
• Production possibility frontiers or production possibility curves are useful tools to illustrate the ideas of scarcity and choice in economics.
• On a micro level, a production possibility frontier (PPF) shows the maximum possible production of two goods or services that can be produced with a given level of factors of production.
• A production possibility frontier also illustrates the various combinations of two goods and services that can be produced with a given level of factors of production.
• A 10 unit increase in tablets each time results in more units of laptops being given up, illustrating the law of increasing opportunity cost.
• A linear ppf curve illustrates constant opportunity cost, meaning the opportunity cost of goods given up remains the same regardless of the increase in services.
• On a macro ppf, the labels on the access to goods and services are changed to reflect the entire economy.
• A concave ppf curve indicates the law of increasing opportunity cost, meaning the more that is produced of one good, the more of the other good has to be given up.
• A macro production possibility frontier (PPF) shows the maximum possible production of all goods and services that can be produced with the level of factors of production in the economy.
• A macro production possibility frontier also illustrates the various combinations of all goods and services that can be produced with given factors of production in the economy.
• Shifting the production possibilities frontier (PPF) curve involves moving along the curve to favor tablet production by reallocating factors of production.
• Allocating the use of their factors of production allows businesses to re-employ factors of production towards specializing more in tablet production.
• Increasing the quantity and/or quality of factors of production, such as labor, capital, enterprise land, and labor, allows the production possibilities frontier (PPF) curve to shift.
• Reallocating factors of production involves moving factors of production away from producing laptops to an extent and towards producing tablets instead.
• The production possibilities frontier (PPF) curve can shift favoring only one of the goods instead of the other one, indicating a change in the quantity and/or quality of factors of production that purely suit the production of one good over the other.
• The shape of a production possibility frontier can indicate the opportunity cost of producing goods and services.
• A production possibility frontier can show how production can be increased of goods and services.
• A substitute is a good that's a rival good to something else or it's a good that's in competition with something else, such as coke and pepsi.
• Good advertising affects all willingness to buy something, so good advertising will shift the demand curve from d1 to d2, increasing demand from q1 to q2 regardless of the price.
• Population can affect demand if there is a greater population, there'll be more demand for a certain good or service, which will shift the demand curve to the right from d1 to d2.
• The basic law of demand states that when price increases, quantity demanded decreases, and when price decreases, quantity demanded increases.
• The income effect explains that when prices go up, there is a contraction of demand and a fall in quantity demanded, as our income can't stretch as far and the purchasing power of our income can't go as far.
• If the price of a substitute goes up, more people are going to be willing and able to buy the other good instead, which will shift the demand curve for the other good from d1 to d2.
• Bad advertising, such as a bad report or a bad news article about something, can cause the demand curve to shift left as we become less willing to buy from d1 to d3.
• The substitution effect explains that when prices go up, other goods and services become more price competitive, causing us to switch our consumption towards buying those goods and services instead, which is why demand contracts for this good or service.
• If the price of a substitute goes down, fewer people want to buy the other good, more people will be willing and able to buy the other good, decreasing demand from d1 to d3, shifting the demand curve for the other good to the left.
• Non-price factors such as population and advertising can affect demand independent of price.
• Demand is the quantity of a good or service consumers are willing and able to buy at a given price in a given time period.