SUPPLY & DEMAND

Price Ceiling:keeps prices from getting too high. ex: rent control
Consequences of price ceiling
1. lower prices for some consumers
2shortage
3 long lines for buyers
4 illegal sales above equilibrium price

Price floor- legal minimum price meant to help sellers4 consequences1 higher product price2 a surplus3 higher taxes or higher government debt if the government buys a surplus4 waste

COSTS OF PRODUCTION

Fixed cost: a cost that does not change no matter how much is produced (mortgage)

Variable cost: a cost that rises or falls depending on how much is produced. (electricity bill)

total costs: fixed cost + variable costs

Marginal revenue: the additional income from selling one or more unit of a good.

Marginal cost: is the cost of producing one or more unit of a good.

total revenue: Price x Quantity

Formulas
TFC+TVC=TC
AFC+ AVC=ATC
TFC/Q=AFC
TVC/Q=AVC
TC/Q= ATC
TFC= AFC/Q
TC=AC
MC= CURRENT TOTAL COST - TOTAL CURRENT.

SUPPLY

supply: the direct relationship between price and quantity supply
Price increase= supply decrease

What causes a change in quantity supplied?
△ in price

What causes a change in supply?
△ in technology
△in the weather
△ in texas or subsides
△in the cost of production

^supply= right shift of curve
⌄ in supply= left shift of curve

PRICE ELASTICITY OF DEMAND

Elastic Demand- demand that is very sensitive to a change in price. product is not a necessity and there are available substitutes
Ex: steak, pork
E>1

Inelastic Demand: demand that is not sensitive to a change in demand.
the product is a necessity and there are few to no substitutes
Ex: Milk, insulin
E<1

Unit Elastic on Unitary Elastic Demand-
measure of how consumers react in a change in price.
E=1

PED FORMULAS:

Step 1 quantity  New-Old
                              Old

Step 2 price       New- old
                                old
Step 3:% ⃤ change in quantity
              %△ change in price

DEMAND BY ITSELF

Demand is - the quantities that people are willing and able to buy at various prices

The Law of Demand- there is an inverse relationship between price and quantity demanded

What causes a change in quantity demanded?
  ⃤ in price

What causes a change in demand?
  ⃤  in number of buyers
population: mass buying products from sellers

  ⃤  in buyers taste
preference: a new trend or craze buyers want

  ⃤  in income
inferior goods- goods that people buy less of when their income rises
normal goods- goods people buy when their income increases.

  ⃤  in price of related goods
substitute: goods that serve roughly the same purpose to buyers
complimentary goods: goods that are often consumed together

  ⃤ in expectations
goods that people buy when their income increases

PPG GRAPHS

PRODUCTION POSSIBILITIES GRAPH:   graph shows an alternative way to use an economic resource.

PRODUCTION POSSIBILITIES CURVE  curve on the graph

PRODUCTION POSSIBILITIES FRONTIER= PPG



Key assumptions about PPG:

1. full employment= 4-5% unemployed, 90% factory capacity.

2.Fixed resources: 
land, labor, capital
Fixed state of technology
No international trade
two goods are produced ( can't have more than 2 at a time.)

3 movements inside PPG

Shift inside PPC
Shift outside PPC
Shift on the PPC

Allocative & Productive Efficiency 

Allocative efficiency: products being produced are ones most desired by society.

 Productive efficiency: products being produced in the least costly way.

⭐UNIT 1 BASIC ECONOMIC CONCEPTS

Difference between Micro and Macro economics

Macroeconomics-  the study of economics as a whole. (BIG PICTURE)

Microeconomics- the study of individual or specific units of the economy. (SMALL PICTURE)

Positive vs Normative Economics

Positive: claims to describe the world as is. (FACTS)
ex: minimum wage laws cause unemployment.

Normative: claims that attempt to say how the world should be (OPINION)
ex: the government should raise min wage.

Want vs Needs

Want: desire, optional (cellphone, tv)

Need: necessity to survive (water, food, air)

Scarcity vs Shortage

Scarcity: problem that all societies face, how to satisfy UNLIMITED wants with LIMITED resources?

Shortage:  Quantity Demand > Quantity Supply

Goods vs Services

Goods : tangentable object. 

E1: consumer goods, (goods intended for final use by consumer) Ipod, Tv, Barbie

E2: Capital Goods (items used to create other goods) plastic,wood,

Services:  action performed by one person for another.

Factors of Production

1.Land : Natural resources

2.Labor: the workforce

3.Capital: Human Capital: Knowlege and skills a                       worker gains through education and                         experience
               Physical Capital: human-made objects                       used to create other goods and services.

4.Entrepreneurship: inventive and risk-taking.

Opportunity Costs:

the most desirable alternative given up by people when making a decision.

tradeoffs: alternative decisions that people make when faced with an economic dilemma.