Economic

• Economic problem


  When we have fewer resources and unlimited wants
• Types of goods


  • Economic goods
  • Free goods
• Economic goods


  • Have opportunity costs
• Free goods


  • Do not have opportunity costs
• Example of free good

  • Sunlight
• Factors of production


  • Land
  • Labor
  • Capital
  • Enterprise
• Land

  Natural resources used in production
• Labor


  Human resources used in production
• Capital


  Man-manufactured resources used to produce goods and services
• Enterprise


  Skills and willingness of a person to take risks
• Rewards for factors of production

  • Rent for land
  • Wages for labor
  • Interest for capital
  • Profits for enterprise
• Types of factor mobility

  • Geographical mobility
  • Occupational mobility
• Geographical mobility


  Willingness of someone to relocate due to employment purposes
• Occupational mobility


  Refers to someone changing jobs
• Opportunity cost


  The cost of the next best alternate of choosing a good
• Production possibility curve


  Can represent opportunity cost
• Points on the production possibility curve

  • Inside - inefficient
  • Outside - unattainable
• Outward shift of the PPC curve

  Means discovery of raw materials, new technology, increasing labor force
• Inward shift of the PPC curve

  Means natural disasters, very low investments in technologies, running out of resources
• Microeconomics


  Study of particular markets
• Macroeconomics


  Study of the whole economy
• Market system


  Economic decisions made according to the price of goods and services that are dependent on supply and demand
• Key questions of economics

  • What to produce
  • How to produce
  • For whom to produce
• Price mechanism


  Decisions made according to the equilibrium point where the supply and demand curve meet
• Demand


  Willingness and ability of customers to buy goods and services at a given price
• Higher price of a good

  Less demand
• Factors affecting demand


  • Price
  • Advertising
  • Government policies
  • Consumer tastes
  • Consumer income
  • Price of substitutes
  • Interest rates
• Individual demand


  Demand of one individual or firm
• Market demand


  Aggregate of all individual demands
• Movement along the demand curve


  Due to change in price
• Shift of the demand curve

  Due to factors of demand
• Supply


  Ability and willingness of suppliers to provide goods and services at a given price
• Higher price of a good

  Higher quantity supplied
• Factors affecting supply


  • Cost of factors of production
  • Prices of other goods
  • Global factors
  • Technology advances
  • Business optimism
• Individual supply


  Supply of an individual producer
• Market supply


  Aggregate of supply of all firms in the market
• Market equilibrium


  When supply and demand are equal
• Price elasticity of demand

  Responsiveness of demand to the change in price
• Types of price elasticity of demand

  • Inelastic demand
  • Elastic demand
• Factors affecting price elasticity of demand

  • Number of substitutes
  • Time period
  • Proportion of income
  • Necessity of the product