econs

• Economic problem = there is limited resources and unlimited wants and needs
• Opportunity cost - the value of the best alternative that you give up
• Scarcity = when the demand exceeds supply, or vice versa
• Demand = how much people are willing to buy at different prices
• Supply = how much producers are willing to sell at different prices
• Market equilibrium = where quantity demanded equals quantity supplied
• economic questions

  1. what to produce
  2. how to produce
  3. for whom to produce
• types of resources

  1. natural - come from nature
  2. human - the labour force
  3. capital - assist in production of goods and services
• microeconomics - economic problem from individual point of view
• macroeconomics - study of economy as a whole
• positive economics - concerned with "what is" in the economy
• normative economics - concerned with "what should be" , personal opinions and value judgements
• PPF assumptions =

  1. resources are fixed
  2. technology is fixed
  3. economy only produces two goods
• law of increasing opportunity cost = the OC of increasing the production of one good in an economy with scarce resources normally increases
• Economic growth = an increase in the capacity of an economy to produce goods and services
• market economy = resources are owned privately and decisions are made by the owners acting in self interest
• command economy = resources are owned collectively and decisions are made by a planning authority
• mixed economy - a system in which the government and private sector operate together to provide goods and services
• fundamental questions

  1. what goods and services will be produces and what quantity
  2. How will the goods and services be produced
  3. for whom will the goods and services be produced
• product market = buying and selling of goods and services
• factor market = buying and selling of factors of production or resources that are used in production
• competitive market

  1. large number of buyers and sellers
  2. firms are price takers
  3. similar products
  4. easy entry into market
• imperfect market

  1. small number of firms
  2. product differentiation
  3. firms are price setters
  4. entry into market is restricted
• law of demand = as the price of a good rises, people buy less of it, ceteris paribus
• income effect (law of demand) = when the price of a good rises, consumers are not willing to buy as much of the good because their real income has decreased
• substitution effect (law of demand) = when the price of one good rises, other goods become more attractive to buyers because they are relatively cheaper
• Non price factors affecting demand

  1. levels of disposable income
  2. price of related goods
  3. tastes and preferences
  4. expectations of consumers
  5. demographics
• changes in demand

  • movement along curve - caused by change in price
  • shift of entire curve - caused by a NPF
• Supply = the amount of a good or service that producers are willing and able to sell at a particular price at a particular point in time
• law of supply = as the price of a good or service rises, the quantity supplied also rises
• Non price factors affecting supply

  1. cost of production
  2. technology
  3. prices of other goods
  4. number of sellers
  5. expectations of producers
• changes in supply

  • movement along supply curve - caused by change in price
  • shift of entire curve - caused by a change in an NPF
• equilibrium price - the price that balances the buying intentions of customers and the selling intentions of consumers
• surplus = price is too high to clear the market, and sellers eliminate this by lowering prices
• shortage = the price is too low to clear the market, sellers will increase the price
• increase in demand and supply due to NPF = right shift
• decrease in demand due to NPF = left shift
• price change = movement along s+d curve