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Economics notes
Markets & Equilibrium
A quantity supplied is equal to the quantity demanded is considered an equilibrium quantity
Equilibrium MARKETS: Equilibrium is achieved at the price at which quantities demanded and supplied are equal. We can represent a market in equilibrium in a graph by showing the combined price and quantity at which the supply and demand curves intersect.
For example, imagine that sellers of squirrel repellant are willing to sell 500 units of squirrel repellant at a price of 5$ per can. If buyers are willing to buy 500 units of squirrel repellent at that price, this market would be in equilibrium at the price of 5$ and at the quantity of 500 cans
lDisequilibrium
Whenever markets experience imbalancesâcreating disequilibrium prices, surpluses, and shortagesâmarket forces drive prices toward equilibrium.
A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus.
A shortage will exist at any price below equilibrium, which leads to the price of the good increasing.
For example, imagine the price of dragon repellent is currently 6$ per can people only want to buy 400 dollars of dragon repellent but the sellers are willing to sell 600 cans at that price This creates a surplus because there are unsold units. Sellers will lower their prices to attract buyers for their unsold cans of dragon repellant.
Production possibilities curve (PPC): (also called a production possibilities frontier) a graphical model that represent all of the different combinations of two goods that can be produced; PPC captures scarcity of resources and opportunity costs.
opportunity cost: cost in terms of foregoing alternatives; for example if abby can spend her time either watching videos or studying, the opportunity cost of an hour watching videos is the hour of studying she gives up to do that
efficiency: the full employment of resources in production; efficient combinations of output will always be on the PPC.
inefficient use(under utilization of resources): the underemployment of any of the four economic resources (land, labor, capital, and entrepreneurial ability); inefficient combinations of production are represented using PPC as points on the interior of the PPC.
growth: an increase in an economy's ability to produce goods and services over time; economic growth in the PPC model in illustrated by a shift out of the PPC.
contraction: a decrease in output that occurs due to the under-utilization of resources; in a graphical model of the PPC, a contraction is represented by moving to a point that is further away from, and on the interior of, the PPC.
constant opportunity costs: when the opportunity cost of a good remains constant as output of the good increases, which is represented as a PPC curve that is a straight line; for example, if Colin always gives up producing 2 fidget spinners every time he produces a Pokemon card, he has constant opportunity costs
increasing opportunity costs: when the opportunity cost of a good increases as output of the good increases, which is represented in a graph as a PPC that is bowed out from the origin; for example Julissa gives up 2 fidget spinners when she produces the first Pokemon card, and 4 fidget spinners for the second Pokemon card, so she has increasing opportunity costs.
productivity: (also called technology) the ability to combine economic resources; an increase in productivity causes economic growth even if the economic resources have not changed, which would be represented by a shift out of the PPC.
determinants of supply | changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a goodâs production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, subsidies or taxes in a market, 5) the price of other goods sellers could produce, and 6) the expectations among producers of future prices. |
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change in supply | a movement or shift in an entire supply curve resulting from a change in one of the non-price determinants of supply |
change in quantity supplied | a movement along a supply curve resulting from a change in a goodâs price |
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quantity supplied | the amount of a good or service that sellers are willing to sell at a specific price; quantity supplied is represented in a graphical model as a single point on a supply curve. |
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law of supply | all other factors being equal, there is a direct relationship between a goodâs price and the quantity supplied; as the price of a good increases, the quantity supplied increases; similarly, as price decreases, the quantity supplied decreases, leading to a supply curve that is always upward sloping. |
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supply | a schedule or a curve describing all the possible quantities that sellers are willing and able to produce, at all possible prices they might encounter in a particular period of time; supply is represented in a graphical model as the entire supply curve. |
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Demand: a graph that plots out the demand schedule, which shows the relationship between price and quantity demanded.
determinants of demand: conditions that cause the demand curve to shift.
T-tastes, O-other goods, N-number of buyers, I-income , E-expectations ,
change in demand: when buyers are willing to buy a different quantity at all possible prices, which is represented graphically by a shift of the entire demand curve; this occurs due to a change in one of the determinants of demand.
demand schedule: the demand schedule is the data on price and quantities demanded that can be used to create a demand curve.
Scarcity
rival good - one persons use limits anothers
Economic systems
Property Rights: The idea that things can be owned: Exclusive, Enforceable, Transferable
Command Economy: Incentive problems
Markets: Markets form when multiple parties exchange things of value
Households: the owners of resources- supplies to firms in the resource market and the buyers of goods and services- demanded from firms in the product market
firms: Business entities that demand land, labor, and capital from households in the resource market and produce goods and services, which they supply to households in the product market
Resource market: where households supply land, labor capital, and entrepreneurship/technology to firms in exchange for money
Product market: where firms supply goods and services to households in exchange for money
Economic system: A system of allocating the means of production and the goods and services produced in an economy
Wages:the payment firms make to households in exchange for their labor
Rent: the payment firms make to households in exchange for capital
interest: the payment firms make to households in exchange for capital
profit: the payment to entrepreneurs who start or own business
Market economy: in its purest form, a market economy answers the three economic questions be allocating resources and goods through markets, where prices are generated.
Command economy: in its purest form, a command economy answers the the three economic questions by making allocation decisions centrally
Resources are owned by private individuals, rather than by the government, in a market economy.
Private ownership of the factors of production is a defining characteristic of market economies.
Terms of trade
An agreeable price for a good always falls between the two agentsâ opportunity cost for that good. Charlotteâs opportunity cost of a line of code is 1/6, or 0.167, of a report and Tomerâs opportunity cost of a line of code is 0.2 reports. Charlotte should specialize in lines of codes and will be willing to sell them for anything more than .167 of a report, and Tomer will be willing to buy them for anything less than .2 reports.
Comparative Advantage: =opportunity cost is lower.
Absolute Advantage: = more practice given the same inputs.
When agents have the same opportunity costs, neither have a comparative advantage.
Economics notes
Markets & Equilibrium
A quantity supplied is equal to the quantity demanded is considered an equilibrium quantity
Equilibrium MARKETS: Equilibrium is achieved at the price at which quantities demanded and supplied are equal. We can represent a market in equilibrium in a graph by showing the combined price and quantity at which the supply and demand curves intersect.
For example, imagine that sellers of squirrel repellant are willing to sell 500 units of squirrel repellant at a price of 5$ per can. If buyers are willing to buy 500 units of squirrel repellent at that price, this market would be in equilibrium at the price of 5$ and at the quantity of 500 cans
lDisequilibrium
Whenever markets experience imbalancesâcreating disequilibrium prices, surpluses, and shortagesâmarket forces drive prices toward equilibrium.
A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus.
A shortage will exist at any price below equilibrium, which leads to the price of the good increasing.
For example, imagine the price of dragon repellent is currently 6$ per can people only want to buy 400 dollars of dragon repellent but the sellers are willing to sell 600 cans at that price This creates a surplus because there are unsold units. Sellers will lower their prices to attract buyers for their unsold cans of dragon repellant.
Production possibilities curve (PPC): (also called a production possibilities frontier) a graphical model that represent all of the different combinations of two goods that can be produced; PPC captures scarcity of resources and opportunity costs.
opportunity cost: cost in terms of foregoing alternatives; for example if abby can spend her time either watching videos or studying, the opportunity cost of an hour watching videos is the hour of studying she gives up to do that
efficiency: the full employment of resources in production; efficient combinations of output will always be on the PPC.
inefficient use(under utilization of resources): the underemployment of any of the four economic resources (land, labor, capital, and entrepreneurial ability); inefficient combinations of production are represented using PPC as points on the interior of the PPC.
growth: an increase in an economy's ability to produce goods and services over time; economic growth in the PPC model in illustrated by a shift out of the PPC.
contraction: a decrease in output that occurs due to the under-utilization of resources; in a graphical model of the PPC, a contraction is represented by moving to a point that is further away from, and on the interior of, the PPC.
constant opportunity costs: when the opportunity cost of a good remains constant as output of the good increases, which is represented as a PPC curve that is a straight line; for example, if Colin always gives up producing 2 fidget spinners every time he produces a Pokemon card, he has constant opportunity costs
increasing opportunity costs: when the opportunity cost of a good increases as output of the good increases, which is represented in a graph as a PPC that is bowed out from the origin; for example Julissa gives up 2 fidget spinners when she produces the first Pokemon card, and 4 fidget spinners for the second Pokemon card, so she has increasing opportunity costs.
productivity: (also called technology) the ability to combine economic resources; an increase in productivity causes economic growth even if the economic resources have not changed, which would be represented by a shift out of the PPC.
determinants of supply | changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a goodâs production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, subsidies or taxes in a market, 5) the price of other goods sellers could produce, and 6) the expectations among producers of future prices. |
|---|
change in supply | a movement or shift in an entire supply curve resulting from a change in one of the non-price determinants of supply |
change in quantity supplied | a movement along a supply curve resulting from a change in a goodâs price |
|---|---|
quantity supplied | the amount of a good or service that sellers are willing to sell at a specific price; quantity supplied is represented in a graphical model as a single point on a supply curve. |
|---|---|
law of supply | all other factors being equal, there is a direct relationship between a goodâs price and the quantity supplied; as the price of a good increases, the quantity supplied increases; similarly, as price decreases, the quantity supplied decreases, leading to a supply curve that is always upward sloping. |
|---|
supply | a schedule or a curve describing all the possible quantities that sellers are willing and able to produce, at all possible prices they might encounter in a particular period of time; supply is represented in a graphical model as the entire supply curve. |
|---|
Demand: a graph that plots out the demand schedule, which shows the relationship between price and quantity demanded.
determinants of demand: conditions that cause the demand curve to shift.
T-tastes, O-other goods, N-number of buyers, I-income , E-expectations ,
change in demand: when buyers are willing to buy a different quantity at all possible prices, which is represented graphically by a shift of the entire demand curve; this occurs due to a change in one of the determinants of demand.
demand schedule: the demand schedule is the data on price and quantities demanded that can be used to create a demand curve.
Scarcity
rival good - one persons use limits anothers
Economic systems
Property Rights: The idea that things can be owned: Exclusive, Enforceable, Transferable
Command Economy: Incentive problems
Markets: Markets form when multiple parties exchange things of value
Households: the owners of resources- supplies to firms in the resource market and the buyers of goods and services- demanded from firms in the product market
firms: Business entities that demand land, labor, and capital from households in the resource market and produce goods and services, which they supply to households in the product market
Resource market: where households supply land, labor capital, and entrepreneurship/technology to firms in exchange for money
Product market: where firms supply goods and services to households in exchange for money
Economic system: A system of allocating the means of production and the goods and services produced in an economy
Wages:the payment firms make to households in exchange for their labor
Rent: the payment firms make to households in exchange for capital
interest: the payment firms make to households in exchange for capital
profit: the payment to entrepreneurs who start or own business
Market economy: in its purest form, a market economy answers the three economic questions be allocating resources and goods through markets, where prices are generated.
Command economy: in its purest form, a command economy answers the the three economic questions by making allocation decisions centrally
Resources are owned by private individuals, rather than by the government, in a market economy.
Private ownership of the factors of production is a defining characteristic of market economies.
Terms of trade
An agreeable price for a good always falls between the two agentsâ opportunity cost for that good. Charlotteâs opportunity cost of a line of code is 1/6, or 0.167, of a report and Tomerâs opportunity cost of a line of code is 0.2 reports. Charlotte should specialize in lines of codes and will be willing to sell them for anything more than .167 of a report, and Tomer will be willing to buy them for anything less than .2 reports.
Comparative Advantage: =opportunity cost is lower.
Absolute Advantage: = more practice given the same inputs.
When agents have the same opportunity costs, neither have a comparative advantage.
NoteStudied by 11 peopleNoteStudied by 1654 peopleNoteStudied by 8246 peopleNoteStudied by 1 personNoteStudied by 10 peopleNoteStudied by 4 people