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Chapter 1 and 2(a), Opportunity Cost; value of next best alternative…

- - - - incentivise companies to produce more/ less
    - - [both supply and demand increases]
        
        (Increase in) D>S —> P increases, Q increases
        
        (Increase in) D<S —> P decreases, Q increases
        
        (Increase in) D=S —> P unchanged, Q increase
      - [both supply and demand increases]
        
        (Decrease in) D>S —> P decreases, Q decreases
        
        (Decrease in) D<S —> P increases, Q decreases
        
        (Decrease in) D=S —> P unchanged, Q decrease
      - if there are two opposite shifts, there will be one definite variable and one indefinite variable, use keywords that tell extent, e.g. "large increase" to determine the graph
    - - when quantity demanded = quantity supplied
        
        Producer Surplus: $ received by prod - $ prepared to receive
        
        Consumer Surplus: $ prepared to pay - $ actually paid
  - - - the quantity demanded of a good is inversely related to the price of the good, ceteris paribus (eg. when price increases, demand decreases and vice versa)
    - - Beyond a certain point of consumption, as more units of goods are consumed, the additional utility that consumers derive from consuming successive units decrease
    - - Change in prices of related goods (complements/substitutes)
      - Changes in consumers' income
      - Changes in consumers' expectations
      - Change in number/composition of consumers
      - Change in consumers' tastes and preferences
      - government policies
      - Derived demand
    - - Demand curve (downward sloping)
      - Demand schedule
      - Equation (demand function)
  - - - states that in a given time period, the quantity supplied of a product is directly related to its price, ceteris paribus
    - - government policy: indirect taxes + subsidies
      - number of sellers
      - changes in costs of relevant resources
      - changes in technology
      - expectation of future price changes
      - nature, 'random shocks' & other unpredictable events
      - changes in price of related goods
    - - change in amount supplied of a good/service by producers due to change in price of good/service = change in quantity supplied of the good/service
        
        _
      - change in amount supplied of a good/service by producers due to factors not relating to the price of the good/service = change in supply
        
        _
    - - supply function
      - supply curve
      - supply schedule
    - - the quantity of a well-defined commodity that producers are both willing & able to supply at a given price during a given period of time, ceteris paribus
- - - - hence, we need Rational decision making: weighing marginal benefit and marginal cost
        
        understand based on what economic agent is being discussed
        
        consumers: aim to max. utility (satisfaction they receive from a good/ service
        workers: aim to max. welfare at work (choose higher pay job)
        government: aim to max. social welfare
  - - - requires efficiency:
        productive: achieved when firms in an economy are producing the maximum output for the given amt. of inputs/ given output with the last combination of inputs
        allocative: current combination of g&s prod. and consumed allows the society to achieve the greatest level of satisfaction
      - shown through the PPC