Demand

demand is the quantities that people are willing or able to buy at various prices
The law of demand: there is an inverse relationship between price/quantity demanded.
as price increases quantity decreases
A Change in price causes a change in demand.
5 determinants of demand:
1. Change in buyers taste (Advertising)
2. CHange in #of buyers (population)
3. Change in income- 2 types:

-Normal goods: buyers buy more when income rises

-Inferior goods: buyers buy less when income rises.

4. change in price of related goods:

Substitute goods: goods that serve the same purpose to buyer’s ex. Coke and Pepsi

Complimentary goods: goods consumed together Ex. Burgers and fries

5. Change in expectations (thinking of the future)

Elasticity of demand- tells how drastically buyers will cut back or increase demand for a good when the price rises or falls

Elastic demand E> 1   - when demand will change greatly given a small change in price – tend to think of wants. Ex. Movie tickets, steak

Inelastic E<1 - demand for a product will not change regardless of price- tend to think of needs

Ex. Medicine, gas, milk

Unit elastic =1:

To calculate

            1.       Look at new quantity – old quantity divided by old quantity

2.       New price- old price/ old price

3.       Price elasticity of demand= PED = %change in quantity/ %change in price

Supply

Supply is the quantities that producers and sellers are willing/ able to produce/ sell at various prices.

The law of supply: there is a direct relationship between price / quantity supplied. When price decreases quantity decreases. When price increases, quantity increases change in price causes a change in the quantity supplied.

Determinants of supply

1.       Change in weather

2.       Change in technology

3.       Change in taxes/ subsidies – money government gives you

4.       Change in cost of production

5.       Change in number of sellers

6.       Change in expectations

Jan 20

Expansionary- real output of economy is increasing while output is decreasing. (Expansion) Ex. Construction

Peak- where real GDP is at its highest point

Contractionary phase- (recession) real output in the economy is decreasing while unemployment is decreasing

Trough: lowest point of real GDP

Some stuff and calculations

Marginal revenue: additional income from selling an additional unit of a good.

Price floor: government imposed minimum on how low a price can be charged on a good or service.

Price ceiling: government imposed maximum on how high a price can be charged on a good or service.

Equilibrium: the point where the supply curve and the demand curve intersect. At the point of intersection the economy is using its resources efficiently

Shortage: The quantity demanded is greater than the quantity supplied

Surplus: The quantity supplied is greater than the demand.

Fixed cost: cost that does not change no matter how much is produced.

Price x quantity = total revenue

Total fixed cost (TFC) is a fixed cost as stated within the name.

The total variable cost (TVC) is calculated using several methods

The total cost (TC) can be found by adding the TFC and the TVC

Marginal cost = New TC – Old TC

Average fixed cost (AFC) = TFC/ quantity

Average variable cost (AVC) = TVC/ quantity

The Average total cost (ATC) = AFC+ AVC

Macroeconomics/ Microeconomics

Macroeconomics -the study of the major components of the economy.

-          Ex. Inflation, GDP, International trade

Micro economics-Study of how households and firms make decisions and how they interact in markets

-          ex. supply and demand, market structures

Positive economics vs normative economics

Positive economics- Claims that attempt to describe the world as is, it is very descriptive (fact based)

-          Ex. Minimum wage laws causes unemployment

Normative economics- claims that attempt to prescribe how the world should be, very prescriptive in nature (opinion based)

-          Ex. The government SHOULD raise the minimum wage.

Needs vs Wants

Needs- basic requirements for survival  -Ex. Food, water, shelter

Wants- desires of citizens, broader than needs

Scarcity vs Shortage

Scarcity- most fundamental economic problem facing all societies. Satisfying unlimited wants and needs with limited resources.

Shortage- Quantity demanded is greater than quantity supplied (temporary)

Goods vs Services

Goods- tangible commodities. 2 types- consumer goods and capital goods

-          Consumer- goods intended for final use by consumer

-          Capital goods- items used in the creation of other goods ex. Factor, machinery, trucks

Services-  work that is performed for someone else

Factors of production

1. land-natural resources

2. Labor- work force

3. capital- human-knowledge and skills /physical- human made objects used to create other goods/services

4. entrepreneurship- innovator/risk taker

Tradeoffs

Tradeoffs- Alternatives we give up when we choose one course of action over another

Opportunity cost- the most desirable alternative given up by making a decision

Production possibility graphs- shows alternative ways to use resources.

Point e- (outside the curve) – economic growth, technology, new resources

Productive efficiency- producing at lowest cost and allocating resources efficiently, full employment of resources. (any point on the curb)

Allocative efficiency- where to produce on the curb