basi c ceco 1.docx

**BASIC ECONOMICS** ***CHAPTER 1:*** **ECONOMICS -** social science that studies how people make choices under conditions of scarcity and how those choices affect the production, distribution, and consumption of goods and services**.** **MICROECONOMICS:** this focuses on individual and business d...

**BASIC ECONOMICS** ***CHAPTER 1:*** **ECONOMICS -** social science that studies how people make choices under conditions of scarcity and how those choices affect the production, distribution, and consumption of goods and services**.** **MICROECONOMICS:** this focuses on individual and business decisions. **MACROECONOMICS:** this looks at the economy as a whole. ***CHAPTER 2:*** **SCARCITY** - limitation of supply in relation to demand of a commodity. - Unlimited Wants - Limited Resources **FOUR FACTORS OF PRODUCTION:** 1. **LAND** -- refers to all natural resources such as minerals, forests, and water. 2. **LABOR** -- refers to the effort and skills of people who work to produce goods and services. 3. **CAPITAL** -- refers to the tools, machinery, and other physical assets used to produce goods and services. 4. **ENTREPRENEURSHIP** -- combine the other factors of production, land, labor, and capital to make a profit. **ECONOMIZING THE RESOURCES** - refers to making optimum use of available resources. **BUDGET CONSTRAINT** -- all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of opportunity set. **HOW INDIVIDUALS MAKE CHOICES BASED ON THEIR BUDGET CONSTRAINT:** - **OPPORTUNITY COST** - refers to the value of the next best alternative that must be sacrificed or foregone when a decision is made to allocate resources (such as time, money, or labor) to one choice over another. - **MARGINAL DECISION-MAKING -** involves assessing the incremental benefits and costs associated with making small changes in a particular activity, production level, or resource allocation. - **MARGINAL BENEFIT (MB):** this refers to the additional benefit or utility gained from consuming one more unit of a good or service. - **MARGINAL COST (MC):** represents the additional cost incurred by producing one more unit of a good or service or by making an incremental decision. - **DIMINISHING RETURN:** - **DIMINISHING MARGINAL UTILITY (PRINCIPLE) -** as consumers consume more units of a particular good or service within a given time frame, the additional satisfaction or utility derived from each additional unit decreases. - **LAW OF DIMINISHING MARGINAL UTILITY (LAW)-** as individuals consume more of a good or service, the extra satisfaction or happiness gained from each additional unit diminishes. **SUNK COST -** is a financial or time investment that has already been incurred and cannot be recovered. ***CHAPTER 3:*** **DEMAND** - refers to the amount of some good or service consumers are willing and able to purchase at each price.**PRICE** - is what a buyer pays for a unit of the specific good or service. **QUANTITY DEMAND** - the total number of units that consumers would purchase at that price.**LAW OF DEMAND** - the inverse relationship between price and quantity demanded. as the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases. **DEMAND SCHEDULE** - table that shows the quantity demanded at each price.**DEMAND CURVE** -shows the relationship between price and quantity demanded on a graph, with quantity on the horizontal axis and the price per gallon on the vertical axis.**SUPPLY** - the amount of some good or service a producer is willing to supply at each price. **LAW OF SUPPLY** - the direct relationship between price and quantity supplied. **SUPPLY SCHEDULE** - shows the quantity supplied at a range of different prices.**SUPPLY SCHEDULE** - shows the quantity supplied at a range of different prices.**EQUILIBRIUM** - the situation where quantity demanded is equal to the quantity supplied **SHORTAGE --** excess demand **SURPLUS --** excess supply **CETERIS PARIBUS --** other things being equal **NORMAL GOOD** - a product whose demand rises when income rises, and vice versa.**INFERIOR GOOD** - a. product whose demand falls when income rises, and vice versa. **OTHER FACTORS THAT SHIFT DEMAND CURVES (GOODS AND SEVICES):** 1. **BUYERS --** changes in the number of consumers. 2. **INCOME --** changes in consumers' income. 3. **TASTE/TRENDS --** changes in preferences or popularity of product/ services. 4. **EXPECTATIONS --** changes in what expect to happen in the future. 5. **RELATED GOODS --** compliments and substitutes. **OTHER FACTORS THAT SHIFT SUPPLY CURVES (GOODS AND SERVICES):** 1. **SUBSIDIES/ TAXES --** government policies such as subsidies for producers or taxes on goods can impact the cost of productions for suppliers. 2. **TECHNOLOGY --** advances in technology can lead to more efficient and cost effective productions methods. 3. **OTHER GOODS --** the prices of goods that are alternative outputs for producers can affect their decisions about what to supply. 4. **NUMBER OF SELLERS --** the total number of sellers or producers in a market can influence the overall supply. 5. **EXPECTATION --** expectation about future market condition such as changes in prices or demand can influence current supply decisions. 6. **RESOURCE COST --** cost of resources including raw material and labor, affect production cost and consequently supply. **PRICE CEILING --** a legal maximum price. a price ceiling keeps a price from rising above a certain level (the "ceiling"). **PRICE FLOOR --** a legal minimum price. a price floor keeps a price from falling below a given level (the "floor"). **CONSUMER SURPLUS --** the extra benefit consumers receive from buying a good or service, measured by what individuals would have been willing to pay, minus the amount that they actually paid. **PRODUCER SURPLUS --** the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept. **SOCIAL SURPLUS --** the sum of consumer surplus and producer surplus. ***CHAPTER 4:*** **LABOR MARKET --** are market for employees or job. **DEMAND --** firms and other employers. **SUPPLY --** individuals, workers, or employees. **FINANCIAL MARKET --** are market for saving or borrowing. **DEMAND --** individual or firm/ lenders. **SUPPLY --** person, firm, or government/ loaners. **FACTORS THAT SHIFT DEMAND IN LABOR MARKET:** - **DEMAND FOR OUTPUT** - **EDUCATION AND TRAINING** - **TECHNOLOGY** - **NUMBER OF COMPANIES** - **GOVERNMENT REGULATIONS** - **PRICE AND AVAILABILITY OF OTHER INPUTS** **FACTORS THAT SHIFT SUPPLY IN LABOR MARKET:** - **NUMBER OF WORKERS** - **REQUIRED EDUCATION** - **GOVERNMENT POLICIES** **PRICE FLOOR IN THE LABOR MARKET -** is a government-imposed minimum wage, which is the lowest legal amount that employers are required to pay their workers. **MINIMUM WAGE --** compulsory pay an employer must pay the employees. **LIVING WAGE --** total amount required to cover basic living expenses. **WHO DEMANDS AND SUPPLIES IN FINANCIAL MARKETS:** - SUPPLIERS RECEIVES THE PRICE - DEMANDERS PAY THE PRICE **PRICE CEILING IN FINANCIAL MARKET -** is a regulatory limit imposed by government on how high a price can be charged for a product or service. **USURY LAW -** laws that imposed an upper limit on the interest rate that lenders can charge. A. PROTECT BORROWERS B. STABILIZE ECONOMY C. FAIRNESS +-----------------+-----------------+-----------------+-----------------+ | | **GOODS/SERVICE | **LABOR | **FINANCIAL | | | S** | MARKET** | MARKET** | +=================+=================+=================+=================+ | **LAW OF | PRICE INCREASE | WAGE INCREASE | INTEREST | | DEMAND** | | | INCREASE | | | DEMAND DECREASE | DEMAND DECREASE | | | | | | DEMAND DECREASE | +-----------------+-----------------+-----------------+-----------------+ | **LAW OF | PRICE INCREASE | WAGE INCREASE | INTEREST | | SUPPLY** | | | INCREASE | | | SUPPLY INCREASE | SUPPLY INCREASE | | | | | | SUPPLY INCREASE | +-----------------+-----------------+-----------------+-----------------+ ***CHAPTER 5:*** **ELASTICITY --** an economics concept that measures responsiveness of one variable to changes in another variable. **ELASTIC DEMAND --** when the elasticity of demand is greater than one. **INELASTIC DEMAND -** when the elasticity of demand is less than one. **ELASTIC SUPPLY -** when the elasticity of supply is greater than one. **INELASTIC SUPPLY -** when the elasticity of supply is less than one. **PED --** price elasticity on demand **PES --** price elasticity on supply **MIDPOINT METHOD:** \ [\$\$QD = \\frac{Q2 - Q1}{(Q2 + Q1)/2} \\times 100\$\$]{.math.display}\ \ [\$\$P = \\frac{P2 - P1}{(P2 + P1)/2} \\times 100\$\$]{.math.display}\ \ [\$\$PED = \\frac{\\text{QD}}{P}\$\$]{.math.display}\