Midterm Notes 1

Midterm Notes 1 - Economics study of how people allocate...

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Economics - study of how people allocate scarce resources for production, exchange, or consumption. Positive what it or what will occur in economy. Normative what should be/ what we want to have occur in the economy. Opportunity Cost- cost of giving up the next best alternative when a decision is made. OC of X= amount of Y gave up / amount of X get in return. Principle of increasing opportunity cost- as choose to produce more of good x the opportunity cost of X increases. Inside the ppf- inefficient, outside the ppf- unattainable, Shifts- technology improves, increase in resources. Absolute advantage- produce more of that goods using the same amount of resources than another person. Comparative advantage- can produce a good at a lower opportunity cost than another person. Specialization- focus productive activities toward one good. Price- amount of money must give up in order to obtain one unit of a good. Demand Quantity demand- amount of good willing and able to buy at a given price all other things being constant. Law of demand- price of good and quantity demanded are inversely related. P up, Q down. Change in quantity demanded- change in price, movement along the demand curve. Change in demand- when factor other than price change, moves left or right: income increases (normal- earn more purchase more, inferior- earn more purchase less) , goods become more desirable, number of buyers increase, price of substitute goods increase, price of complementary good drops, future prices expected to be higher than todays price. Market Demand- sum of all individual demand curves for particular good. Supply Quantity supplied- amount of good want to sell at given price all other things constant. Law of Supply- price of good and quantity supplied are directly related. P up, Q up. Change in quantity supplied- movement along supply curve caused by change in price. Change in supply - factor other than goods price changes: technology improves, inputs become cheaper, number supplies increases, price of complement in production rises, price of substitute in production falls, future prices supposed to be lower than todays prices. Market Supply-
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This note was uploaded on 03/30/2008 for the course ECON 1101 taught by Professor Someguy during the Winter '07 term at Minnesota.

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Midterm Notes 1 - Economics study of how people allocate...

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