Economics Final Notes

1. Scarcity

• Definition: The condition where unlimited wants exceed limited resources.

• Key Concepts:

  • Trade-offs: Choosing one option over another due to scarcity.

  • Opportunity Cost: The value of the next best alternative foregone.

  • Economic Questions:

    • What to produce?

    • How to produce?

    • For whom to produce?

2. Supply and Demand

• Law of Demand: As the price of a good decreases, the quantity demanded increases (and vice versa).

• Law of Supply: As the price of a good increases, the quantity supplied increases (and vice versa).

• Key Terms:

  • Demand Schedule: Table showing the quantity demanded at various prices.

  • Supply Schedule: Table showing the quantity supplied at various prices.

  • Equilibrium Price: The price at which quantity demanded equals quantity supplied.

  • Shifts in Demand:

    • Factors: Income, consumer preferences, price of related goods (substitutes and complements), expectations, population changes.

  • Shifts in Supply:

    • Factors: Cost of production, technology, taxes/subsidies, expectations, number of suppliers.

  • Elasticity: Measure of responsiveness of quantity demanded/supplied to price changes.

3. Economic Systems

• Traditional Economy:

  • Decisions based on customs, traditions, and beliefs.

  • Examples: Indigenous communities.

• Command Economy:

  • Government makes all economic decisions.

  • Examples: North Korea, Cuba.

• Market Economy:

  • Decisions driven by consumers and producers with little government intervention.

  • Examples: United States (largely).

• Mixed Economy:

  • Combination of market and government intervention.

  • Examples: Most modern economies.

4. Market Structures

• Perfect Competition:

  • Many sellers, identical products, easy entry/exit.

  • Example: Agricultural products.

• Monopolistic Competition:

  • Many sellers, differentiated products, relatively easy entry.

  • Example: Clothing brands.

• Oligopoly:

  • Few sellers dominate the market, products may be identical or different.

  • Example: Airlines, cell phone carriers.

• Monopoly:

  • Single seller, no close substitutes, high barriers to entry.

  • Example: Local utilities.

Practice Questions

1. Explain how scarcity leads to trade-offs and opportunity costs.

2. Draw and label a supply and demand curve. Indicate what happens to equilibrium price if demand increases.

3. Compare and contrast a command economy with a market economy.

4. Describe the differences between monopolistic competition and oligopoly.