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ACDC (Basic economic concepts (economics (assuptions (trade-off (all the…
ACDC
Basic economic concepts
economics
domains
macro
micro
assuptions
trade-off
all the alternatives that we give up when we make a choice
scarcity
unlimited wants and limited resources
everyone responds to incentives and acts in their own "self-intrests"
decisions are made by comparing marginal costs and marginal benefits
life can be conceptualized with grafs
concepts
oppertunity cost
most desirable alternative given up wen you make a choice
investment
money spent by businesses to improve their production
goods
consumer goods
created for direct consumption
capital goods
created for indirect consumption
goods used to make consumer goods
human capital
skills or knowledge gained by a worker through education and experience
four factors of production
land
labor
capital
entrepreneurship
economic systems
three important questions for society
how should it be produced?
who consumes what is produced?
what should be produced?
types
centrally-planned
free market (capitalism)
key ideas
invisible hand
society´s goals will be met as individuals seek their own self-interest
competition and self-interest act as an invisible hand that regulates the free market
mixed economies
frameworks
production possibilities curve
demonstrates
trade-offs
ratio capital consumer goods
more capital leads to future growth
opportunity costs
constant
resources are easily adaptable for producing either good
straight PPC
uncommon/exception
the law of increasing opportunity cost
the more you produce of one good the opportunity cost will increase
concave PPC
efficiency
ineffeciency
inside
effecient
on the curve
unattainable
outside
scarcity
specialization and trade
concepts
absolute advantage
can produce most output or requre least amount of inputs
comparative advantage
the producer with the lowest opportunity cost
countries should specialize in what they have a comparative advantage in and trade
Demand, supply, and consumer choice
demand and supply
demand
definition
the different quantities of goods that the consumer are willing and able to buy at different prices
concepts
law of demand
negative correlation between price and quantity demanded
is explained by
the substitution effect
people buy substitutes when the price goes up
when the price goes down people are attracted away from substitutes towards the product
the income effect
purchasing power increases and decreases with thewith the price
the law of diminishing marginal utility
you get less and less satisfaction from each unit you consume
graph
market demand curve
5 shifters of demand
tastes and preferences
number of consumers
price of related goods
substitutes
complements
income
normal good
inferior good
Big Macs
future expectations
supply
definition
the diffrent quantities of a good seller are willing and able to sell(produce) at different prices
concepts
law of supply
positive correlation between price and quantity supplied
graph
Market supply curve
5 shifters
prices/availability of inputs
number of sellers
technology
government action
taxes
subsidies
expectations of future profit
graphs
market supply and demand
concepts
equlibrium
disequilibrium
surplus
quantity supplied is greater than quantity demanded
shortage
occurs when
quantity demanded is greater than quantity supplied
calculated
quantity demanded - quantity supplied
concepts
welfare economics
price controls
types
price ceiling
features
will cause a shortage
to be binding (have and effect on the market) it has to be below equilibrium
price floor
features
will cause a surplus
to be binding it has to go above equlibrium
concept
dead weight loss
every time there is a loss in consumer or producer surplus
concepts
consumer surplus
the difference between what the consumer are willing to pay and what he is actually paying
producer surplus
the diffrence between the price the seller received and how much they are willing to sell for
international trade
tariff
excise taxes
elasticity
shows how sensitive quantity is to a change in price
types
demand
types
inelastic demand
quantity is insensitive to change in price
products
examples
2 more items...
features
4 more items...
elastic demand
quantity is sensitive to change in price
features
many substitutes
luxuries
large portion of income
elasticity k greater than 1
cross-price
shows how sensitive a product is to a change in price of another good
% change in quantity of product b / % change in price of product a
positive correlation = substitutes
negative correlation = complements
income elasticity of demand
shows how sensitive a product is to a change in income
% change in quantity/ %change in income
positive correlation = normal goods
negative correlation = inferior
supply
shows how sensitive producers are to a change in price
total revenue test
shows the relationship between elasticity and revenue
the box is getting larger when the elasticity is inelastic and smaller when its elastic
utility maxization
utility maximation rule
marginal utility per dollar