Three questions: 1. what? 2. How? 3. for whom? Property rights: rights to use and ownership of property that create incentive for behavior. PPF: gives maximum combination of goods a country can produce. All points on PPF are efficient. Points within are attainable but inefficient. Outside points at unattainable. Bowed out shape reflects increased opportunity cost. Limited resources and technology affect it. Retirement shifts it inward.Opportunity Cost: next best alternative foregone. Law of Increasing Opportunity Cost: as you move along PPF, the opportunity cost of additional units increases because production gets less efficient. PPF is bowed out. Economic growth shiftsPPF outward, caused by increase in technology and resources.Relative Price: expressed relative to money price of another good. If a hamburger costs $2 and a pizza costs $4, the relative price of a pizza is 2 hamburgers and the relative price of a hamburger is ½ a pizza. Supply and Demand: As price goes up, quantity supplied goes up and quantity demanded goes down. This reflects the law of supply and demand. Demand curves have negative slopes. Supply curves have positive slopes. Complements are goods used together. An increase in the price of one causes decrease in demand of another. Decrease in price of one causes increase in demand for other. Substitutes are used in place of each other. An increase in price of one good causes increase in demand for another. If a substitute is easy to find, the good is elastic. Normal good increase in income causes increase in demand. Inferior good increase in income causes decrease in demand (buses). -DEMAND-[Cause of changes: INCOME(normal goods: income ↑, demand ↑- income ↓, demand ↓)(inferior goods: income ↑, demand ↓, income ↓, demand ↑) PRICE OF RELATED GOODS(substitutes: price of sub ↑, demand ↑, price of sub ↓, demand↓)(complements: price of comp ↑, demand ↓, price of comp ↓, demand ↑)PREFS(like more, demand ↑, like less, demand ↓) # OF DEMANDERS(demanders ↑, demand ↑, demanders ↓, demand ↓) EXPECT. FUTURE PRICE(EFP up, demand ↑, EFP ↓, demand ↓)] –SUPPLY-[Cause of changes: COSTS(costs ↑, supply ↓, costs ↓, supply ↑) TECHNOLOGY(tech advance, supply ↑, tech retreat, supply ↓) # OF SUPPLIERS( suppliers ↑, supply ↑, suppliers ↓, supply ↓) EFP(EFP ↑, supply ↓, EFP ↓, supply ↑) PRICES OF SUB and COMP
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