January 11, 2017

January 11, 2017

Elasticity of Demand: A measure of how consumers react to a change in price


Elastic demand
1.demand that is very sensitive to a change in price 
2.product is not a necessity 
3.there are available substitutes 
4.always greater than 1
ex. soda/steak/fur coat

Inelastic demand

1.demand that is not very sensitive to a change in price 

2.product is a necessity 

3.little to no substitutes 

4.always less than 1

ex. gas, insulin 

Unitary elastic 

Perfect society/always equal to 1

Total revenue: total amount of money a company receives from selling goods and services

Price x Quantity = Total revenue 

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

Fixed cost: it is a cost that does not change no matter how much of a good is produced

Variable cost: it is a cost that rises or falls depending upon how much is produced 

TFC + TVC = TC

AFC + AVC = ATC 

TFC/Q = AFC

TVC/Q = AVC

TC/Q = ATC

AFC x Q = TFC

AVC x Q = TVC 

Marginal cost = new TC - old TC

output = quantity 

Equilibrium: point at which the supply curve and demand curve intersect 

Excess Demand: where quantity demanded is greater than quantity supplied (shortage); consumers can not get the quantity of item they desire 

Price ceiling: found below equilibrium; occurs when the government puts a legal limit on how high the price of a product can be (ex. rent control)

Price floor- lowest legal price of a commodity can be sold at used by the government to prevent prices from becoming too low.

QD>QS excess demands (ex.rent) shortage

QS>QD excess supply/ creates a surplus

January 4, 2017 (Production)

January 4, 2017

Production possibility graph (ppg)
                                 curve (ppc)
                                 frontier (ppf)
Production possibility graph shows alternative ways to use an economy resources
Efficiency- using resources in a certain way to maximize the production of good and services
under utilization: opposite of efficiency/ using fewer resources than an economy is currently using (leads to decreased in profits)



On the curve: Point D,C,B- attainable/efficient
Inside the curve(recession/famine/war): Point: A- Attainable/inefficient/underutilized/unemployment/underemployment of resources
Outside the curve: Point C-unattainable using current resources (technology or future growth)

4 KEY ASSUMPTIONS
1.Only 2 goods can be produced
2.full employment of resources
3.fixed resources (factors of production)
4. Fixed technology

Three types of movement that occur within the PPC

1.
Inside the curve

2.
On the curve (X,Y)


3.
Shifts of the PPC

Law of Increasing Opportunity Cost
When resources are shifted from making one good or service to another, the cost of producing a second item increases

Two Types of Efficiency

Productive efficiency: products are being produced in the least costly way; any point on the PPCAllocate efficiency: the products being produced are the ones most desired by society; this optimal point on the PPC depends on the desires of society 

OVERVIEW OF THIS LESSON!! WATCH !!!

DISCUSSION QUESTION:
Does creating a PPC give an exact prediction of the financial status of the 2 productions?

January 3, 2017

January 3, 2017

Macroeconomics- (big picture)
microeconomics- individual or specific units of the economy/ how people make decisions and interact with the market

Positive Economics vs. Normative Economics

Positive Economics: claims that attempt to describe the world as it is very descriptive in nature ( fact based)
Normative Economics: claims that attempt to prescribe how the world should be (opinion)

Needs vs. Wants

Needs: Basic requirement for survival
Wants: Desire

Scarcity vs. Shortage

Scarcity: Fundamental economic problem that all society face/ How to satisfy unlimited wants with limited resources
Shortage: Quantity demanded exceeded quantity supplies

Goods vs. Services

Goods: tangible
capital goods: Items used for other goods
consumer goods: goods that are intended by final use
services: work that is performed for someone

Factors of Production
Land: natural resources
Labor: work exerted 
Capital: Human capital- when people acquire skills and knowledge through experience and education. Physical capital- money, tools, buildings, and machinery 
Entrepreneurship: risk taking, innovative, uses all 3 factors to promote

Trade Offs: alternative that we sacrifice when we make a decision
Opportunity Cost: next best alternative
Guns or Butter: refers to the trade offs that a country faces when choosing whether to produce more or less of  military goods or consumer goods
Thinking at the Margins: deciding whether to add or subtract one additional unit of some resource 

EASY GUIDE TO UNDERSTAND THIS LESSON BELOW!

Overview of this lesson

Discussion Question:

Could opportunity cost be considered as a negative output that economy shows?