Introduction to Economics

Macroeconomics

• international trade
• minimum wage
• supply and demand

Microeconomics- study of the individual or specific units of the economy 

(comparable to a tree)

• market structures
• business organizations

Positive v. Normative Econmics

• Positive economics- attempts to describe the world as is; presents facts
• Normative economics- attempts to prescribe how the world should be; presents opinions

Needs v. Wants

• Needs- basic requirements for survival
• Wants- desires of citizens; PS4

Goods v. Services

Goods- tangible commodities 

• Capital Goods- items used in the creation of other goods
• Consumer Goods- goods that are intended for final use by the consumer

Services- work performed for someone; doctor, barber, etc.

Scarcity v. Shortage

• Scarcity- The most fundamental economic problem that a society faces; satisfying unlimited wants with limited resources
• Shortage- quantity demanded is greater than quantity supplied

Factors of Production

• Land: Natural Resource
• Labor: Work Force
• Capital: two types
• Human Capital: Is gained through work experience and education (Skills, Talent, Abilities)
• Physical Capital: Resources required to produce goods
• Entrepreneurship: 
• innovator
• risk-taker

Production Possibilities Graph

• Shows alternative ways to use economic resources
• known as PPC (Production Possibilities Curve) or PPF (Production Possibilities Frontier)
• 3 movements of the PPC:
• Inside the PPC 
• Along the PPC 
• Shifts outside the PPC
• causes for the PPC to shift
• 1. Technological changes
• 2. Change in resources
• 3. Economic growth
• 4. Natural Disasters/War/Famine
• 5. Change in labor force
• 6. More education: training(human capital) 
• Assumptions of the PPG

1. Two goods
2. fixed resources
3. fixed technology
4. technical efficiency 

Price Elasticity of Demand

• Elasticity of Demand- measure of how consumers react to a change in price
• Elastic Demand- demand that is very sensitive to a change in price. E>1, the product is not a need, substitutes are available
• Inelastic Demand- demand that is not very sensitive to a change in price. E<1, product is a need, few to no substitutes
• Unitary Elastic- E=1

Price Elasticity of Demand

• Step 1: Quantity   (New Quantity - Old Quantity)/(Old Quantity)
• Step 2: Price        (New Price - Old Price)/ (Old Price)
• Step 3: PED         (% change in quantity demanded)/ (% change in price)

Supply and Demand

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

• The Law of Supply: There is a direct relationship between price and quantity supplied.
• Change in price causes a change in quantity supplied
• What causes a change in supply?
• 1. Change in Weather
• 2. Change in Technology
• 3. Change in the cost of production
• 4. Change in the number of sellers
• 5. Change in taxes or subsides
• 6. Change in Expectations

Demand: 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.
• Change in price causes a change in quantity demanded
• causes for a change in demand

1. Change in buyer's taste

2. Change in the number of buyers

3. Change in income

• inferior goods: Increase in income, Decrease in demand
• normal goods: Increase in income, Increase in demand

4. Change in the price of related goods

• complementary goods: They go together
• substitute goods: Can be substituted for

5. Change in Expectations

Total Revenue: The total amount of money a firm receives from selling good and services

• (Price) x (Quantity)

Fixed Cost: A cost that does not change no matter how much is produced; such as rent and mortgage

Variable Cost: A cost that rises/falls depending upon how much is being produced; such as an electricity bill

Marginal Cost: The cost of producing one more unit of a good 

• (new total cost) - (old total cost)

Formulas

• TFC + TVC = TC
• AFC + AVC = ATC
• TFC / Q = AFC
• TVC / Q = AFC
• TC / Q = ATC
• AFC x Q = TFC
• AVC x Q = TVC