Definitions
Economics is...
the study of how people allocate their limited resources to satisfy their nearly unlimited wants
how society manages its scarce resources
Which one is positive? Which one is normative?
1) America should have better transportation.
2) California is a landlocked state.
1) normative
2) positive
Efficient: located on the line
Inefficient: located inside of shaded area/left of line
Impossible: outside of shaded area/right of line
The 5 foundations of economics are...
incentives matter
life is about trade offs
opportunity costs
marginal thinking
trade creates value
on a PPF, affecting the production of one good vs. both goods looks like...
One good: one end point will shift
Both goods: both end points will shift (whole line moves)
ceteris paribus means...
all other things being equal
Which is a normal good? Which is a inferior good?
1) store brand
2) name brand
1) inferior
2) normal
Graph this: Qd = 30 - 4P; P = 15 -1P
What is it?
Demand Curve
Graph as slope formula (Qd interects at 30 and has slope of -4) (P intersects at 15 and has slope of -1)
Endogenous vs. Exogenous factors
endogenous: variables controlled for inside a model
exogenous: variables that are not accounted for inside model (outside of model --> exoskeleton)
What causes movement along a demand curve vs. a shift in the demand curve?
Movement along curve: caused by change in price of good
Shift of curve: caused by change in non price factors
Left decrease; right increase
Production Possibilities Frontier
combinations of outputs that a society can produce is all of its resources are being used efficiently
Which is a complement? Which is a substitute?
1) Car & gas
2) Coffee & tea
1) complements
2) substitutes
Graph this: Qs = 9 + 3P; P = -9 + 3Qs
What is it?
Supply Curve
Like demand curve, graph as slope form (Qs intersects at 9 and has a slope of 3) (P intersects at -9 and has a slop of 3)
Allows 2 different entities (people, companies) to produce what they are better at and trade for what they are not as good at producing.
Event: Price of pasta sauce rises
What happens to demand curve of pasta and pasta sauce?
Pasta sauce moves along the curve: up
Pasta curves shifts: left
Normal goods vs. inferior goods are...
Normal goods: we buy more when we get more income
Inferior goods: we buy less when we get more income
Scientists discover that apples cure cancer, what happens to demand and supply curves of apples?
Demand shifts right
Equilibrium price and quantity increase
What happens to a supply & demand graph with a shortage? with a surplus?
picture of drawing on ipad; discuss equilibrium: point, quantity, and price
Qd > Qs = shortage
Qs > Qd = surplus
Quantity Demanded: the amount of goods purchased at a given price (a number)
Law of Demand: inverse relationship between price and quantity demanded
Event: Price of sugar decreases
What happens to demand curve?
It shifts right/increases
Determinants of Supply are...
Costs of inputs
changes in technology
taxes and subsidies
number of sellers
price expectations in the future
Supply decreases/shifts left
Price increases, quantity decreases, new equilibrium point
The 5 demand shifters are...
1) changes in income
2) prices of related goods
3) changes in tastes & preferences
4) future expectations about price
5) number of buyers