Elasticity of Demand

Elasticity of Demand: 
Tells how drastically buyers will cut back or increase their demand for a good when the prices rise or fall.

Elastic Demand - When demand will change greatly given a small change in price Wants (ticket prices for movies increase then we are lead to find alternative ways) More than one

Inelastic Demand - Your demand for a product will not change regardless of price Needs(gasoline, salt, medicine) Less than one 

Uni elastic Demand - Equal to one

1. New quantity - old quantity/old quantity
2. New price - old price/old price
3. PED

Equilibrium: 

The point at which the supply curve and demand curve intersect. This point they meet at shows that the resources are being used efficiently.

Shortage - QD>QS

Surplus - QS>QD

Price Ceiling:

Government imposed limit on how high you can be charged. 

Price Floor:

Government price control on how low a price can be charged for a product.

Total Revenue - Price x Quantity

Marginal Revenue - Additional income from selling an additional unit of a good

 

Fixed Cost - A cost that does not change no matter how much is produced (rent, mortgage)

Variable Cost - cost that changes and fluctuates (water bill - how much you use)

Marginal Cost - New total cost - old total cost spend the cost, revenue is what you bring in

Total Cost - TFC + TVC = TC

Average Total Fixed Cost - AFC + AVC

Average Fixed Cost - TFC/Quantity

Average Variable Cost - TVC/Quantity

Total Variable Cost - Quantity x AVC

Production possibilities

Macroeconomics and Microeconomics:

Macroeconomics - study of entire economy which covers the ups and downs of the economy (GDP, Inflation, unemployment)

Microeconomics - study of parts of the economy in which people make decisions and how those decisions interact (supply and demand, market structure)

Positive and Normative:
Positive Economics - describes the way that the economy actually works (ex. minimum wage laws cause unemployment) facts

Normative Economics - describes the way economics should work (ex. price of gasoline is too high)  opinions 


Needs and Wants:

Needs - basic requirement for survival

Wants - desires as citizens

Scarcity and Shortage:

Scarcity - (permanent) most fundamental economic problem that all society face (trying to satisfy unlimited wants with limited resources)

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

Goods and Services:

Goods - tangible commodities

1. Consumer Goods - goods that are intended for final use by consumers
2. Capital Goods - goods that are used in the creation of other goods

Services - work that is performed for someone else.


Factors of production: 

Usage of Resources: 

Trade - offs - alternatives that we give up when we choose one course of action over another

Opportunity costs - most desirable alternative giving up by making a decision

"Guns or Butter"- How are we alleviating our resources (Military or Agriculture)

Production Possibility Graph - shows alternative ways to use resources

Production Possibilities Graph - Key Assumptions 

1. Two goods are produced
2. Full employment
3. Fixed resources (land. labor, capital)
4. Fixed state of technology
5. No international trade

Points on the Graph

A - efficient but produces more boats

B - efficient and attainable (ideal economics)

C - efficient but produces more trucks

D - underutilized, is attainable but inefficient

E - efficient but unattainable (usually during war or famine)

Supply and Demand

Demand: the quantities that  people are willing to buy and able to buy at various demands.

The Law of Demand: an inverse relationship between price and quantity demands. 

Demand Schedule and Demand Curve: displays the relationship of price and quantity demanded

Increase in demand - shift to the right
Decrease in demand - shift to the left

What causes a change in quantity?
change in prices
What causes a change in demand?

1. change in buyer's taste (advertising)
2. change in the number of buyers (population)
3. change in income A. Normal goods - gods that buyers buy more of when their income rises. B. Inferior goods - goods that buyers buy less of when their income rises. 
4. change in the price of related goods. A. Substitute goods - goods that serve roughly the same purpose to buyers (Coca - Cola and Pepsi) B. Complimentary goods - goods that are often consumed together (fries and ketchup)
5. change in expectations - the future 

Supply:
The quantities that producers or sellers are willing and able to produce or sell at various prices

Law of Supply - There is a direct relationship between price and quantity supply (price increases, quantity increases)

Supply Schedule and Supply Curve

What causes change in supply?
change in price

What causes a change in supply?

1. change in weather
2. change in technology
3. change in taxes or subsidies
4. change in cost of production
5. change in number of sellers
6. change in expectations