apmacro vocab

Scarcity

Reality that we have unlimited wants but limited resources

5 econ assumptions

• scarcity

• Due to scarcity choices must be made. Every choice has a trade-off

• Everyone acts based on their own self interest

• Choices are made by comparing marginal costs and benefits

• Real life situations are analyzed via graphs

Trade off

All of the alternatives we give up when we make a choice

Opportunity Cost

Second choice. Most alternative given up when u make a choice

Four factors of production

• land

• Labor

• Capital (physical and human)

• Entrepreneurship

Capital goods and future growth

Countries that produce more capital goods will have more future growth

Per unit opportunity costs

Opportunity cost/ unit gained

Input

I O U, other value goes under

Output

OOO other value goes over

Law of demand

Inverse relation shop between price and quantity demanded

The substitution effect

If price goes up for product A consumers will by less of it and more of its substitute

The Income Effect

If price goes down for product, purchasing power for consumers go up

The law of diminishing marginal utility

As u consume more everything satisfaction wil start to decrease

shifters of demand

• tatstes and preferences

• number of consumers

• price of related goods

• income

• future expectations

normal and inferior goods

normal: as income increases demand icreases

inferior good; as income increases demand fals

law of supply

at highrt prices profit seeking firms have an incentive to produce more

5 shifters of supply

• prices/ availability of recources

• number of sellers

• technolodgy

• government action (taxes and subsidies)

• expectation of future profits

what does the free market want?

to go back to equiilibriuem