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Economics (MICRO (Chapter 1 (factor of productions (capital (human capital…

- - - - capital
        
        human capital
        
        skilled people
        
        natural capital
        
        natural resources
        
        physical capital
        
        man made input
        
        financial capital
        
        stocks bonds money
      - labour
      - land
      - entrepreneurship
    - - what to produce
      - how to produce
      - for whom to produce
    - - reallocation
      - overallocation
      - underallocation
    - - Problem
      - Definition: situation in which available resource are finite whereas wants are infinite.
    - - on the curve
        
        production possibilities
        
        resources fully employed
        
        productive efficiency occurs
      - inside the curve
        
        actual output
      - shift of PPC
        
        Improvement in technology
        
        increase in the amount of resources
      - straight PPC curve means opportunity cost is constant
    - - ceteris paribus
      - rational economic decision making
  - - - Definition: the quantity of goods a firm is willing and able to produce and supply to the market for sale at a different possible price, during the particular time period, ceteris paribus.
      - the law of supply: positive casual relationship
      - positive casual relationship of supply curve
        
        more profit leads to incentive for more production
      - market supply
      - shift
        
        non price determinants
        
        cost of factor of production
        
        technology
        
        price of related goods
        
        competitive supply
        
        corn price fall --> supply more wheat
        
        有選擇的
        
        joint supply
        
        butter price fall --> supply less skimmed milk
        
        物品相同性質
        
        firm expectation of the future price of the goods
        
        tax and subsidies
        
        number of frms
        
        shock: disaster decreases supply
      - movement along the curve
    - - the law of demand: negative casual relationship between price and quantity demanded over a time period --> negative demand curve
      - definition: the quantities of goods conseumrs are willing ans able to pay at different possible prices udring particular time period, ceteris paribus.
      - marginal benefits: extra benefits you get from each additional unit you buy
      - market demand
      - shift
        
        not affected by price change
        
        result change in demand
        
        non price determinants of demand
        
        population changes
        
        price of substitute and complementary goods
        
        tastes and preferences
        
        income in the case of normal and inferior goods
      - movement along the curve
        
        affected by price change
        
        result change in quantity demand
    - - vertical supply curve
        
        impossible to produce more
      - allocative efficiency
      - consumer surplus
      - producer surplus
        
        marginal cost
      - MB=MS : social surplus at max
      - welfare
    - - definition:
        refers to the exchange
        carry out by the interaction
        between buyer and seller
      - competitive market
        
        large number of participants
        
        no one controls price
        
        opposite to molopoly power
    - - demand function: Qd = a-bP
        
        a is the Q intercept that its change leads to shift --> change demand
      - b determines the steepness of the curve --> show the elasticity of the good --> steeper = more elastic
      - supply function
        
        Qs = c+dP
      - Calculate market equilibrium
    - - Qd = Qs
        
        price of the quantity goods the producers are willing to sell and consumers are willing to buy
      - excess surplus
        
        Qs > Qd
      - excess shortage
        
        Qd > Qs
      - explain shift in equalibrium
        
        D shift right --> equilibrium price higher than before --> according to law of supply, firm will only produce more when price is higher
    - - scarcity --> choices --> opportunity cost --> resource allocation --> price --> market economy --> price as signals and incentives
      - price as signals: signals that warn the decision makers/ price as incentive : price that let the decision makers to respond
      - consumer surplus the highest price the buyers wanna buy
      - producer surplus: lowest cost wanna produce: the price that cover its cost of produce extra unit
  - - - formula
      - sign
        
        positive
        
        normal goods
        
        0<YED<1 income inelastic demand
        
        necessities
        
        YED>1 income elastic demand
        
        luxuries
        
        necessities and luxuries depend on the income level
        
        negative
        
        inferior goods
      - definition
      - Application
        
        YED and the rate of expansion of industries
        
        YED and the economy: three sectors
        
        HL section
        
        YED and primary commodities
    - - definition: the responsiveness of the quantity demanded of the good to the change in price of the good
      - formula
        
        after-before/before
        
        SOMETIMES THE VALUE WOULD BE DIFFERENT--> BUT THE TEACHER DID NOT TEACH MIDPOINT FORMULA SO ANYWAY THIS METHOD IS OKAY
      - sign is always negative due to the law of demand but minus sign is dropped to avoid confusion
      - range of values for PED
        
        O < PED < 1 : inelastic demand
        
        very steep
        
        PED > 1: elastic
        
        not steep
        
        PED = infinity : quantity have many respond toward the price change : horizontal
        
        PED = 0 perfectly inelastic : quantity has zero respond toward the pice chance: vertical
        
        PED = 1: unit elastic demand : 圓圓的
      - PED value calculated along the curve
        
        value decreases along the curve
        
        WHY
      - determinants of PED
        
        number and closeness of substitutes
        
        necessities v.s. luxuries
        
        length of time
        
        proportion of income spent on a good
      - PED application
        
        PED and primary commodities and manufactured products
        
        primary commodities: natural resources; low PED value: length of time and necessity
        
        consequences
        
        price volatility: large price fluctuation over short time period
        
        Because: (1) according to compare the inelastic and elastic diagram when supply curve shifts
        (2) price is unstable as the production relies on the weather
        
        Result: (1) farmer unstable income (2) poor crop leads to increase in revenue (cuz price increase)
        
        manufactured goods: higher PED value: substitutes
        
        PED and total revenue
        
        TR=P*Q
        
        If PED > 1: the Qd decrease from price increase is too significant that the increase in P would cause TR decrease.
        --> Do decrease price ( BUT no firm wanna decrease price)
        
        if PED < 1 : P up, Qd down only a little
        
        elastic = lose B is greater than gain C
        inelastic = lose B is smaller than gain C
        
        PED=1 : unit elastic: total revenue at max
        
        PED and indirect tax
        
        tax leads to supply curve shift left --> in case of inelastic goods --> Qd decreased less when price increased a lot
    - - formula
      - range of value of PES
        
        PES = 1 : unit elastic of supply
        
        PES = 0 perfectly inelastic of supply : vertical
        
        PES > 1 : price elastic of supply
        
        PES = infinity: perfectly elastic of supply: horizontal
        
        PES < 1 : price inelastic of supply
      - definition
      - Application
        
        primary commodities low PES / manufactured products high PES
        
        reasons for primary commodities to have lower PES value compare to manufactured products
        
        time needed for the crops to grow
        
        land appropriate for agriculture is shrinking
        
        need time to develop technologies that could change the agriculture
      - Determinants of PES
        
        Length of time
        
        mobility of factor of production
        
        unused capacity of firm
        
        ability to store stocks
    - - compare PED with steepness could only use when the curves intersect
        NO different scale
        NO parallel
    - - Slope: measure quantity responsiveness in absolute terms
        PED: measure quantity responsiveness in percentage terms
      - paper 3: take notes that the calculations in this part only includes the four elasticities
    - - Application
        
        high positive XED = firms wanna merge
        
        Know the relation between substitute goods; high positive XED value = decrease in another's price would decrease in one's quantity demand a lot : substitutes within a business [decrease price is BAD] / substitutes of 2 different businesses [decrease price is GOOD]
        
        high negative XED value = decrease in another's price would increase a lot of one's quantity demand
        E.G. airline and hotel
      - sign matters
        
        positive = substitutes
        
        negative = complements
        
        zero XED = unrelated products
      - formula
      - definition: measure of the responsiveness of one good to the change in price of the other good.
  - - - the max or min price set by government that make the firms unable to adjust to their equilibrium
        
        Price ceiling: the maximum price set by government
        
        consequences
        
        non-price rationing
        
        coupons
        
        favouritism
        
        first come first serve
        
        shortage
        
        underground markets
        
        underallocation
        
        negative welfare impact: meaning the presence of welfare loss
        
        for stakeholders: consumers/ producers/ workers/ government
        
        rent controls
        
        food price controls
        
        Price Floor: the minimum price set by government
        
        Reasons for government to set price floor
        
        help low skilled workers
        
        consequences
        
        surplus
        
        government buy the surplus to: store/export/ aid developing countries
        
        overallocation
        
        firm inefficiency: don't wanna decrease price and don't wanna produce less
        
        assist the farmers
        
        price supports
    - - subsidies and allocation efficiency
      - definition: government assistance to groups of an economy
      - Government grant subsidies
        
        Reasons
        
        encourage production for goods desirable for consumers
        
        support particular industries growth [solar industry]
        
        make certain goods affordable to low-income consumers [fooods]
        
        encourage exports [to increase GDP]
        
        correct positive externalities
        
        Impacts on consumers/ producers/government/ workers/ foreign producers
    - - Direct tax
      - Indirect tax
        
        excise tax: impose on particular goods
        
        tax on all goods
        
        Government impose indirect tax
        
        Reason
        
        discourage harmful consumption
        
        redistribute income: tax on diamond = rich people's income after buying diamonds will decrease
        
        correct negative externatities
        
        Increase gov revenue
        
        Impacts on consumers/ producers/ government/ workers
    - - ad valorem tax
      - specific tax
  - - - definition: Refer to the external cost
        created by the producers
      - examples: Environmental pollution
      - government intervention
        
        government regulation
        
        Strength: practical as it forces the firms to reduce pollution levels
        
        weakness: costs of policing/ don't know types and amount of pollutants/ no incentive for firms to switch resources
        
        market based policy
        
        tax
        
        tax on the output
        
        no incentive to change resource
        
        tax on emmisions
        
        yes incentive to change resrouce
        
        tradable permits
        
        weakness: too low is useless/ too much is not affordable
        
        a certain permitted pollutant amount sell by the governent
        
        disadvantages: don't know what produce pollutants and what is the value of the pollutants
    - - definition: Refer to the external benefits
        created by the consumersproducers
      - examples: trained workers
      - government intervention
        
        government provision
        
        subsidies
    - - definition: Refer to the external benefits
        created by the consumers
      - examples: education
      - government intervention
        
        legislation
        
        advertising
        
        government provision
        
        subsidies
    - - definition: Refer to the external cost
        created by the consumers
      - examples: Drugs and alcohol and cigarettes
      - government intervention
        
        government regulations
        
        weakness: difficult for inelastic goods/ can't measure the value of external costs
        
        advertising
        
        weakness: can't measure the effect/ opportunity cost of government spending
        
        market based policies
        
        strength: increase government revenue
        
        weakness: not decrease Qd due to inelastic
        
        how impose tax works: tax on goods equals to the external cost --> quantity supply is at optimum --> MPB shift towards MSB due to the high price
      - demerit goods: goods that are "undesirable for consumers"
    - - market failure: free rider problem : because goods are not excludable, people use the goods without paying, producers gain no profits, and so do not want to allocate resources to produce them
      - goods that are not rivalrous and not excludable
      - public goods should be provided when MB=MC
- - - - definition: total amount of real output or real GDP that ALL buyers want to buy at a different price level, ceteris paribus
      - reason for a negative slope [movement along the curve: change in real VALUE of wealth]
        
        interest rate effect: price level decrease > people purchasing power increase > demand for money increase = low interest rate > Quantify demand increase
        
        international traded effect: price level decrease > export demand increase > net export increases = quantity demand increases
        
        wealth effect: price level decrease > people think themselves are wealthier > Quantity demand increase
      - determinants of aggregate demand [shift: change in real wealth]
        
        consumption
        
        changes in consumer confidence
        
        changes in interest rate
        
        changes in wealth
        
        changes in personal income taxes
        
        changes in the level of household indebtness
        
        Investment
        
        changes in business confidence
        
        changes in technology
        
        changes in interests
        
        changes in business taxes
        
        the level of corporate indebtness
        
        legal changes
        
        government spending
        
        changes in political/economics priorities
        
        X-M
        
        changes in national income abroad
        
        changes in exchange rates
        
        changes in the level of trade protection
      - real GDP = national income, thus change in income won't affect the national income because ITSELF is what we are measuring
    - - short run
        
        explain up-ward sloping: fix resource price and increasing output price = profitability
        
        definition: at least one price of resource is constant
        
        explain why wages do not change: contracts/ minimum wage legislation/ unions/ worker morale
        
        factors that cause SRAS curve shift
        
        changes in wages or non-labor resource prices
        
        changes in subsidies offered to business or taxes
        
        supply shock like capital destruction
        
        *wage is difficult to change because 1. contracts 2. legislation 3. unions 4. worker morale
      - long run
        
        definition: all resource prices are flexible
        
        explain reason for vertical
        
        explain why LRAS is situated at potential GDP
        
        Why aggregated demand in the long run only influences the price level
        
        Shifting
        
        increase in efficiency
        
        institutional changes
        
        improvements in technology
        
        reduction in the natural rate of unemplyent
        
        improvements in qualities of factor of production
        
        increase quantities of factor of productions
    - - positions
        
        inflationary gap
        
        economy at full employment of output
        
        recessionary gap
      - impacts of changes
        
        AD shift
        
        shift left : apl decrease + real GDP decrease [creates recessionary gap ]
        
        shift right: apl increase + real GDP increase [causes inflationary gap]
        
        SRAS shift
        
        shift left : apl increase + real GDP decrease [stagflation][economic contraction]
        
        shift right: apl decrease + real GDP increase [economic expansion
    - - three sections
      - three equilibrium states
      - Why price level is difficult to change? can't lower wage/ can't lower price level
      - Concept: Wages during economic expansion might increase, however, in the recession, the wages would not decrease easily as there are "labor contract" 'minimum wage legislation' 'workers and unions resistance to wage cut' --> this leads to resource price unable to decrease "wage no decrease, rice would not decrease because firms will have no profit"
    - - economic fluctuations
  - - - expenditure approach
        
        include total spendings
        
        GDP
        
        C+I+G+(X-M)
        
        market value of all goods produced in a country
      - output approach [calculate different economic sectors]
      - income approach
        
        add all income earned from a factor of production in a country within the country over a time period: wages, rent, interest, and profits
    - - GDP
      - GNI
      - Reasons that they can't measure true output value
        
        no include non-marked output
        
        no include output sold underground
        
        no account for negative externalities
        
        no care about depletion of natural resources
        
        don't care quality improvements of goods and services
        
        differing domestic price level
      - Reasons they can't measure standard of living accurately
        
        GDP cannot reflect expectancy in edu and health
        
        no information on distribution of income and output
        
        composition of output is mixed
        
        don't care about increase leisure
        
        don't care about quality of life factors
    - - total and per capita(total value/total population)
      - green GDP = GDP- value of environmental degradation- P
    - - KNOW HOW TO DRAW
      - KNOW THE SIZE
      - Leakage and injection