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Economics
the study of how resources are allocated as a result of unlimited wants and desires, paired with limited resources
Scarcity
a condition in which there is not enough natural resources to fulfill the needs and wants of citizens
Shortage
a condition when there is excessive demand and limited supply. This is typically a reaction to prices being too low and excessive consumption (increase price to fix it)
Surplus
a condition when there is excessive supply and limited demand. This is typically a reaction to prices being too high and low consumption. (decrease price to fix it)
Marginal Cost
The cost associated with each additional unit consumed
Marginal Benefit
The benefit associated with each additional unit consumed
Three fundamental economic questions
What to make, How to make it, Who to sell it to
Factors of production
Labor, Capital, Entrepreneurship, Land
Opportunity Cost
the loss of potential gain from other alternatives when one alternative is chosen. Example: idle cash balances represent an opportunity cost in terms of lost interest on possible money made from investment
Simple terms: It is what you are giving up as a result of the choice you are making
Production Possibility Frontier
Used to illustrate the trade-off scenario when explaining opportunity cost.
Comparative Advantage
doing what you’re best at compared to others; producing things with the least amount of trade-offs or sacrifices.
How do suppliers know which good they should specialize in?
which supplier, has the lowest opportunity cost should make that product
Absolute Advantage
When one country produces more of each product
What does point 1 tell?
Inefficient - not working at full potential, but no trade offs needed
What does point 3 or 4 tell?
Full Potential
What does point 2 tell?
Unattainable with resources available - if you get to that point, economic growth occurred (PPC curve moves right)
Determinants
these are shifters of demand, such as the number of consumers and future expectations
Substitutes
Ex. Pepsi and coke (interchangeable)
Compliments
Goods that go together, such as cars and gas
Inelastic goods
A good that consumers will still buy regardless of the price (ex. gas, inhaler)
Shortage
Leads to excess demand, fix by raising price
Surplus
Excess supply, fix by lowering price
Price ceilings
Max legal price that can be charged for a product
Price floor
Lowest price that goods/service can be paid for (ex. Farming, min wage)
equilibrium
There is no shortage or surplus
Market disequilibrium
There is either a shortage or a surplus of goods
