Definitions
Economics
The study of “scarcity” and choice
The PPC can “shift” as a result of three changes:
Change in resource quantity or quality (e.g. “capital goods”)
Change in Technology
Change in Trade*
The concept that refers to the value of the next best alternative that must be forgone when a decision is made.
opportunity cost
The term for goods that are consumed together, like peanut butter and jelly.
complementary goods
Scarcity
we have unlimited wants but limited resources.
Since we are unable to have everything we desire, we must make choices regarding how we will use our limited resources
The “law of demand” is the result of three overlapping effects:
The Substitution Effect
The Income Effect
Diminishing Marginal Utility
The term for the various quantities of a good or service that producers are willing to sell at different market prices.
supply
The economic term for a sudden, widespread decline in the economy.
recession
Explicit Costs
Explicit costs are costs that involve an “outlay”
Of any resource, most often money (e.g. price of a movie ticket)
There are five causes of a shift in demand:
Changes in the Prices of Related Goods
Changes in Consumer Income
Changes in Tastes/Preferences
Changes in Expectations of Price
Changes in Population
This economic concept refers to the increase in the general price level of goods and services over time.
inflation
The place where buyers and sellers come together to trade goods and services.
market
Implicit Costs
Costs that do not involve an outlay (e.g. the forgone time or wage one could have had when going to the movies).
Five Determinants of Elasticity of Demand
Substitutes, Proportion of income, Luxury vs. Necessity, Addictive/Habit-forming Quality, Time
The term for the measure of responsiveness of quantity demanded or quantity supplied to a change in price.
elasticity
The term for goods that are not necessary for survival but add comfort or pleasure.
luxury goods
Relatively Elastic Demand
a change in the price of good x leads to a relatively significant change in the quantity demanded.
There are two key assumptions of the PPC:
There are only two goods produced
This principle suggests that as the quantity of a good or service consumed increases, the additional satisfaction or utility derived from each additional unit decreases.
What is the law of diminishing marginal utility?
The concept of not spending more money than you earn.
What is living within your means