ECO 155 Unit 1 - MSU Dr. David Mitchell

4 factors (or resources) of production

land, labor, capitol, entrepreneurship

rent

factor payment for land

wage

factor payment for labor

interest

factor payment for capitol

profit

factor payment for entrepreneurship

law of increasing opportunity cost

as you make more units of a good, the opportunity cost of making more increases

division of labor

method that breaks down tasks into their parts

absolute advantage

when one economic agent can make more of a goof than another economic agent

comparative advantage

when one economic agent can produce a good at a low opportunity cost than another economic agent

market

an institution or mechanism that brings together buyers and sellers for good and services or resources

demand

schedule that shows the various amounts of product which consumers are willing and able to purchase at each specific price in a series of possible prices during some specified time frame

law of demand

ceteris paribus, as price increases, the quantity demand decreases OR as price decreases, Qty Demand increases-- they move opposite eachother

income effect

idea that as prices decrease, its as if your income increases-- you are able to buy more

substitution effect

price change = change in opportunity cost

Market Demand Curve

a curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus

supply

A schedule showing the various amounts of a product that producers are willing and able to bring to market at each specific price in a series of possible prices

law of supply

ceteris paribus, as price increases, quantity supplied increases