Unit 1: Topic 3- Demand and Supply

Unit 1 Topic 3

Demand and Supply

Demand- The quantities that people are willing and able to buy at various prices.
P↑Q↓, P↓Q↑

Demand schedule- Always down flowing.

As price decreases the quantity increases.]
Supply- The quantities that supplies/ producers (Sellers) are willing and able to produce/sell at various prices.
P↑Q↑, P↓Q↓

Supply Schedule- Always upwards flowing.

The Law of Demand- Inverse relationship between price and quantity demanded.

Delta (🔺)- Change in price

Determinants of Demand- What causes the change in Price

1. 🔺 in buyers taste -advertising
2. 🔺 in number of buyers -population
3. 🔺 in income- Normal Goods- goods that buyers buy more of when income rises. Inferior Goods- goods that buyers buy less of when income rises.
4. 🔺 in price of related goods- Substitute Goods- goods that serve roughly the same purchase to buyers. Complimentary Goods- goods that are often consumed together. (EX. Hamburgers and Fries)
5. 🔺 in expectation (future)

The Law of Supply- There is a direct relationship between price and quantity supplied.

Determinants of Supply

1. 🔺 in number of sellers (supplies/producers)
2. 🔺 in the cost of production (salary, wages)
3. 🔺 in technology 
4. 🔺 in weather 
5. 🔺 in taxes/ subsides- government gives money
6. 🔺 in expectation (future)

Total Revenue- Price multiplied quantity.

Elasticity of Demand- Measure of how consumers react to a change in price.
Inelastic Demand- The demand of good will not change or will change very little regardless of price. I<1
Elastic Demand- Demand will change greatly given a small change in price. E>1
Unitary Elastic Demand- E=1

Price Elastic of Demand

Step one: Quantity- new-old

                                   old

Step two: Price-       new-old

                                    old

Step three: Price Elasticity of Demand (PED)-  % 🔺 of quantity

                                                                            % 🔺 of price

Fixed Cost- it is a cost that does not change, no matter how much of a good is produced. (EX. salary, insurance, mortgage)

Variable Cost- a cost that rises and falls depending upon how much is being produced. (EX. electricity) 

Marginal Cost- the cost of producing one more unit of a good.

Price Ceiling- a legal maximum price meant to help buyers. (EX. Rent control)

4 Consequences of Price Ceiling

1. Lower prices for some consumers.
2. Shortage
3. Long line for buyers
4. Illegal sales above the equilibrium price.

Price Floor- a legal minimum price meant to help the sellers, keeps prices from falling. (EX. Minimum wage)

4 Consequences of Price Floor

1. Higher product prices.
2. Surplus
3. Higher Taxes
4. Waste (never been used products)

💣Formulas💣

• TFC+TVC=TC
• AFC+AVC=ATC
• TFC/Q=AFC
• TVC/Q=AVC
• TC/Q=ATC
• 🔺TC/ 🔺Q= MC
• TFC= AFCxQ
• TVC= AVCxQ
• TC= ATCxQ

Unit 1: Topic 2- Production Possibilities Graphs

Unit 1 Notes

Production Possibilities Graphs

Production Possibilities Graphs- Alternative ways to use resources. Show the most that society can produce if it uses very available resource to the best of its ability.

• PPG- Production Possibilities Graphs
• PPC- Curve
• PPF- Frontier

Six Key Assumption

1. Full Employment- 80-90% factory capacity. 4-5% unemployment (IDEAL) 💪 Reasons why full employment isn't going to happen;😞 never will happen, people are lazy, have no skills, won't work.)
2. Productive Efficiency 
3. Fixed Resources- Land, Labor, Capital, Entrepreneurship
4. Fixed State of Technology
5. No International Trade
6. Two Goods are Produced

                                                          Movements of the PPG

1. Inside of the curve- Any point on the inside
2. Along the curve- Moving along the curve. (Directional flow)
3. Shifts of the curve- Can be both on the inside and the outside.

Opportunity Cost- The next best alternative that you must give up in order to get something. (EX. Should i study for a test or should i go to a party?) Not your first choice. Form of trade-off.
 Law of Increasing Opportunity Cost- As you produce more of one good, the opportunity cost(the forgone production of another good) will increase. (HAVE TO BE PRODUCING ONE MORE THAN OTHER, CANNOT PRODUCE EQUALLY)

Concave vs. Constant PPG- 

                      Concave- Increasing at every level.

                      Constant- Straight line
 Productive Efficiency vs. Allocate Efficiency

Productive Efficiency- Products are being produced in the least costly way. Any point on the PPG.

Allocative Efficiency- The products being produced are the ones are the most desired by society.

Unit 1: Topic 1- Introduction to Economics

💥Introduction to Economics💥

Unit 1- Basic Economic Concepts🔑

Scarcity- The state of being scarce or in short supply; shortage, fundamental problem that all society face.

Economics- Knowledge concerned with the production, consumption, transfer of wealth.

1st Pillar of Economics Wisdom-  Nothing in our material world can come from nowhere, nor can it be free; everything in our economic life has a source, a destination and a cost that must be paid - by someone. 

Five Key Economics Assumptions- 

• Society's wants are unlimited, but all resources are limited (scarcity). 
• Due to scarcity, choices must be made. Every choice has a cost (trade-off). 
• Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest ".
• Everyone makes decisions by comparing the marginal cost and marginal benefits of every choice.
• Real- life situations can be explained and analyzed through simplified models and graphs.

Marginal- Change in quantity used of goods and services

• Marginal Cost -  The cost added by producing one additional unit of product or service.
• Marginal Benefit- Person receives from consuming an additional unit of goods or services. 

Ceteris Paribus- With conditionals remaining the same.

Opportunity Cost- The loss of potential gain from other alternatives when one alternative is chosen.

Macroeconomics- The part of economics concerned with large scale or general economics factors; such as interest rate and national productivity. 

Microeconomics- The part of economics concerned with single factors and effects of individual decisions.

Utility- The state of being useful, profitable or beneficial.

Allocate-  Analysis of how scarce resources are distributed among producers, and how scarce goods and service are apportioned among consumers. This analysis takes into consideration the accounting cost, economic cost, opportunity cost, and other cost of resources and goods and services.

Price- Amount of money that has to be paid to acquire a product.

Cost- The total cost of choosing one action over another.

• Economic Cost- Includes the accounting cost: actual funds spent carrying out an action.
• Opportunity Cost- Amount of money that could have been made by using funds and other resources.

Investment- Purchase of goods that are not consumed today but are used in the future to create wealth.

Goods- Satisfy human wants and provide utility.

• Consumer Goods- Satisfy consumers wants and needs.
• Capital Goods-  Items used to create other items.

Services- Performed for someone else. 

Explicit Cost- Direct payment made to those running a business. Ex.(Wage, Rent)

Implicate Cost- No actual payment is being made.

Positive vs. Normative Economics

• Positive Economics-  (Factual)  Claims that attempt to describe the world as is. Very descriptive. Ex. (Minimum wage laws cause unemployment.
• Normative Economics- (Opinion)  Claims that attempt to prescribe how he world should be. Ex. (Government should raise minimum wage.)

Wants- Desire of the citizen.

Needs- Requirement for survival. (Food, Water, Shelter)

Shortage- Quantity demanded is greater than quantity supply. (Price goes ↑)

Surplus- Quantity supply is greater than quantity demand. (Price goes ↓)

Factors of Production

• Land- Natural resources
• Labor- Study of economic behavior of employers and employees in response to changing prices, profits, wages, and working conditions.
• Capital 
• Human Capital- Knowledge and skills a worker gains through education and experience.
• Physical Capital- Human made objects used to create other goods
• Entrepreneurship- Risk taker and inivative
• and services.