8th Grade Econ t1

The Economic Problem

• Factors of Production: Resources used to produce goods and services.

• Scarcity: Limited resources make choices necessary.

• Economic Goods: Have two characteristics.

  • Limited availability.

  • Require cost to obtain.

Economic Way of Thinking

• Opportunity Costs: The cost of the next best alternative when a choice is made.

• Choices:

  • Incentives influence decision-making.

  • Marginal Analysis: Evaluating the benefits against the costs of a small incremental change.

• Theory of Consumer Choice:

  • Total Utility vs. Marginal Utility: Total utility is the overall satisfaction, while marginal utility is the satisfaction from one additional unit.

  • Diminishing Marginal Utility: As more of a good is consumed, the satisfaction gained from additional units decreases, different from diminishing marginal returns in production.

  • Weighing Marginal Costs and Marginal Benefits ensures good decision-making.

Production Possibility Curves

• Shifts in the curve can indicate economic growth.

• Comparative vs. Absolute Advantage: Ability to produce goods at a lower opportunity cost compared to others.

Economic Systems

• Three Fundamental Questions: What to produce? How to produce? For whom to produce?

• Market, Mixed, and Command Economies:

  • Market: Relies on supply and demand.

  • Mixed: Combination of market and government control.

  • Command: Central authority makes production decisions.

The Laws of Demand and Supply

Demand

• Law of Demand: Higher prices lead to lower quantity demanded.

• Determinants of Demand: Factors that cause shifts in demand.

• Substitutes/Complements & Inferior/Normal Goods: Relationships impacting demand.

• Change in Demand vs. Quantity Demanded: Shifts in the curve vs. movement along the curve.

• Elasticity of Demand:

  • Measures how much demand responds to price changes.

  • Calculation methods and interpretation.

Supply

• Law of Supply: Higher prices lead to higher quantity supplied.

• Determinants of Supply: Factors that shift the supply curve.

• Change in Supply vs. Quantity Supplied: Cause and effect of shifts vs. movements along the curve.

Equilibrium

• Price Determination: Interaction of supply and demand sets prices.

• Shortages vs. Surpluses: Occur when prices are not at equilibrium.

• Consumer and Producer Surplus: Areas within the supply and demand curves; how to calculate.

• Price Floors and Ceilings: Impacts on market equilibrium.

Costs of Production

• Types of Costs:

  • Total Cost, Variable Cost, Fixed Cost, Average Total Cost, Average Variable Cost, Average Fixed Cost, Marginal Cost.

• Cost Relationships: Understanding how costs interact graphically.

Profit

• Profit Maximization Rule: To maximize profit, compare total revenue and total costs.

• Accounting vs. Economic Profit: Definitions and differences.

• Normal Profit: Zero economic profit.

Perfect Competition

• Characteristics: Identifies a competitive market.

• Price Takers: Firms accept market price.

• Profit Maximization: Understanding MR=MC on graphs.

• Short Run & Long Run Adjustments: Identifying conditions for business decisions.

Monopoly

• Characteristics: Definition and market control.

• Barriers to Entry: Factors that prevent competition.

• Natural Monopoly: Arises when one firm can supply the market at a lower cost.

• Profit Maximization: Calculating and understanding monopoly profits.

Market Failure and Government Role

• Government Intervention: Correcting market failures.

• Taxation Aims: Funding public services and redistributing income.

• Public and Private Goods: Characteristics and implications for society.