Supply and Demand

Demand is the quantities that people are willing/able to buy at various prices.

Causes in Change of Demand

1. Δ in # Buyers

2.Δ in Buyers taste

3. Δ in income: inferior goods & Normal goods 

4. Δ In price related goods: Substitute & Complimentary Goods

5.Δ in expectations 

   

Supply is the quantities that suppliers are willing and able to produce at various prices.                

Causes in change of supply 

1. Δ in# of sellers

2. Δ in Cost of production

3. Δ in weather

4. Δ in Technology

5. Δ in Taxes or Substitutes

6. Δ in Expectations 

Price Ceiling & Price Floor

Price ceiling & Price floor

Cost of production

Cost of production 

• Fixed cost: A costs that does not change no matter how much is produced 

Ex: Mortgage

• Variable Costs- A cost that rises or falls depending on how much is produced

Ex: Electricity bills

• Total Costs: Fixed Costs + Variable Costs

• Marginal Revenue: Additional income from selling one more unit of a good. 
• Marginal Costs: The cost of producing one more unit of a good.

• Total Revenue: Price x Quantity 

 Go to:

https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/basic-economics-concepts-macro/demand/v/law-of-demand

Price and Elasticity of Demand

PRICE ELASTICITY OF DEMAND- A measure of how consumers react to change in price 

ELASTIC- Very sensitive to a change in price 
They are substitutes( not a necessity)
E>1 
Ex:Soda, Steak, Fur Coat 

INELASTIC- Not very sensitive t a change in price
few or no substitutes ( a necessity)
E<1
Ex: Insulin,Milk,Gas

UNITARY- E=1 

STEPS

1. Quantity

• New- Old/ Old

1. Price

• New-Old/Old

1. PED

%Δ in Quantity / %Δ in price 

PPG

PPG 

• PPG'S- Production Possibilities Graph: Alternative way to use a resource 
• PPC- Curve 
• PPF- Frontier 

• Inside the curve: Point A- Recession, unemployment, Underemployment
• On the curve: Point D
• Outside the curve: Point X- Economic growth, technology 

• Point A- Attainable but Inefficient 
• Point D- Attainable and Efficient 
• Point X- unattainable 

1. Key Assumptions 

• Two goods are produced 
• Fixed resources 
• Fixed Technology 
• Full Employment : 4 to 5% unemployment
• No International Trade 

Basic Economics

Basic Economics

• Macroeconomics vs. Micro Economics  

1. Macro- the study of the economy as a whole
2. Micro-The study of individual parts of the economy "Looking at trees and not the forest"

• Positive vs. Normative Economics 

1. Positive- Claims that attempt to describe the world as is.

Ex:Minimum wage laws cause unemployment(fact)

1. Normative- Claims that attempt to describe how the world should be.

Ex: The Gov. should raise the Minimum wage (opinion based)

• Wants vs. Needs 

1. Wants-something that is desired by citizens 
2. Needs- Basic requirements for survival

• Goods vs. Services 

1. Goods- Tangible Object: Capital goods vs. Consumer goods 
2. Capital- Items used in the creation of other goods 
3. Consumer-Goods that are intended for final use by consumer 
4. Services- work performed by one person for another service 

• Factors vs. Production

1. land- Natural Resources 
2. Labor- Work exerted 
3. Capital- Human , Physical 
4. Human- Knowledge and skill a worker gains through education and experience 
5. Physical- Human made objects used to create other goods and services 
6. Entrepreneurship- Innovate and risk taker 

• Trade offs: alternative choices people face when making an economic decision 
• Opportunity Cost: The most disirable alternative given up when making a decision 

Scarcity- Fundamental Economic problem that all society's face ( How to satisfy unlimited wants with limited resources.)

Shortage- Quantity Demanded> Quantity  Supply (temporary)