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Change in quantity demanded/supply=affected by price (move dot on curve); change in demand or supply (change in certain factors)=shift whole curve L or R
What do economists believe are the 3 basic needs of life?
shelter, food/water, clothing
Assumption that economists make
people have unlimited wants; all resources are limited/finite
Resource
Anything that people can use to make or obtain what they need or want
Factors of Production
things used to produce goods and services (also known as resources)
Types of resources and their type of payment
Land-rent; labor-wages; capital-interest; entrepreneurship-profit
Capital
things that can help produce other things
physical: manufactured items that people use to make other goods and/or services
human: skills, intellect, and ability of labor (improved w/ training and education)
financial: money
Entrepreneurship
making decisions on what to do with the land, labor, and capital
Scarcity
people do not and cannot have enough income, time, or resources to satisfy their every desire and so we have to make decisions
Economics
study of how people and nations make choices about how to use scarce resources to fill their needs and wants
trade-offs
all the things that had to be given up when a decision was made
opportunity cost
the hardest choice to give up when a decision is made
Opportunity benefit
what is gained by making a particular choice
Efficient
performing/functioning in the best possible manner with no waste of time, effort, and resources
What does the line on a PPF or PPC graph represent
the outermost limits of what could be produced in peak conditions
On a PPF or PPC graph, what does a point/dot represent
the actual production
Explain the three regions of a PPF
point on the PPF=most efficient
point inside the PPF=inefficient
point outside the PPF=not possible
3 causes for economic growth
increase in the quantity of resources, increase in quality of resources, technological advancements
Difference between straight line PPFs and Curved PPFs
straight=constant opportunity cost; curved=increasing opportunity cost
absolute advantage
advantage realized by the producer able to generate greater output with a given amount of time or resources
Comparative advantage
When one individual or nation can produce something at a lower opportunity cost than another; what product can you produce best in regards to opportunity cost
Output Problem
The numbers that are varying represent what can be produced in a given period of time
Input Problem
The numbers that are varying represent how much goes IN to produce an equal number of output; you want the lower numbers
Terms of trade
an agreed upon exchange rate of two goods between two producers (often nations)
Mutually beneficial terms of trade
fall between the opportunity costs of the two producers involved
What will a price change for a good or service change?
A change in price for that good or service will lead to a change in the quantity demanded
What do you do on a demand graph to show a change in quantity demanded?
Move from one point on a demand line to some other point on the demand line
What do you do on a demand graph to show an increase in demand?
An arrow to the right
What do you do on a demand graph to show a decrease in demand?
An arrow to the left
Explain what a normal good is
Income and demand go in the same direction
Higher Income→Higher Demand
Lower Income→Lower Demand
Explain what an inferior good is
Income and Demand go in opposite directions Ex. cup of noodles
Higher Income →Less Demand (for cup noodles)
Lower Income → Higher Demand
Explain Complementary Goods
Products that are used together. If you buy one, you’re likely to buy the other;
If the price of toothbrush goes up, the quantity demanded (single point on demand curve) for this good will go down and the demand (entire demand curve) for toothpaste will go down.
Explain Substitute Goods
Products similar enough they can replace the other; If the price of coffee goes up, the quantity demanded for this good or service will go down and the demand for tea will go up
Change in Expectations For Future Income
When consumers are pessimistic about their future incomes, the overall level of demand for goods and services in the economy decreases. The opposite is true
Change in Expectations For Future Price Change
When people expect a G or S to drop in price in the future; When people expect a G or S to increase in price in the future.
-Less willing to buy a computer before the Black Friday sale
What Causes Changes in Demand? In /Times Past /Really Good /White /Beans /Existed
Income
Tastes and Preferences
Related Goods
Complementary
Substitute
Weather
# of Buyers
Expectations
Future Income
Future Price Change
Who does demand focus on?
Consumer
Supply
The quantity of a good or service a business is willing and able to produce at different prices
Individual Supply
quantity of a good or service that 1 business will produce at various prices
Market Supply
total quantity of a good or service that all firms in a market will make available for sale at various prices
Demand
Quantity of goods and services that a consumer is willing and able to purchase at various prices
Equation for Profit
Profit=(Quantity Sold X Price)-Costs of Production
Law of Supply
As the price goes up, producers will be more motivated to increase their quantity supplied. As the price goes down producers will be less motivated to produce the quantity supplied
What causes a change in quantity supplied?
Change in Price for that good or service
How do you show this on a supply graph?
One point on the supply line to another point on the supply line
What do you do on a supply graph to show an increase in supply?
Line shifts to the right
What do you do on a supply graph to show a decrease in supply?
Line shifts to the left
Change in Input (Factor) prices
If the price of a factor of production goes up, producers may not be able to afford to produce as much as they used to.
Change in Business Taxes
Increases in tax rates placed upon businesses often prompt some businesses to lower their production. Opposite is true
Subsidy
Any form of government support--financial or otherwise--provided to producers or (occasionally) consumers; If people get financial support from the government for producing a certain thing, they will be more motivated to keep on producing that product.
Price Equilibrium
If they charge too high of a price there will be a surplus and they’ll be tempted to lower the price; If they charge too low of a price, there will be a shortage and they’ll be tempted to raise the price
Surplus
How much the quantity supplied is greater than the quantity demanded;
lessen the surplus: decrease the price —> qty demanded increases, qty supply decreases
Shortage
how much the quantity demanded exceeds the quantity supplied
lessen the shortage: increase the price —> qty demanded decreases, qty supply increases
What must you remember when supply and demand both shift?
One of either peq or queq cannot be determined for certain. The other one most certainly will increase or decrease.
Price increases, Quantity increases
demand increases, supply stays the same
Price decreases, Quantity decreases
Demand decreases, supply stays the same
Price decreases, Quantity increases
Demand stays the same, Supply increases
Price increases, Quantity decreases
Demand stays the same, supply decreases
