Economics Notes - Final Practice PDF

# Economics Notes ## Feasible Production - **Feasible:** Within or on the PPF (Production Possibilities Frontier) - **Infeasible:** Outside of the PPF - **Efficient:** All available scarce resources are being used. ### Comparative Advantage **CA:** If the slope is the same, no gain from trade. *...

# Economics Notes ## Feasible Production - **Feasible:** Within or on the PPF (Production Possibilities Frontier) - **Infeasible:** Outside of the PPF - **Efficient:** All available scarce resources are being used. ### Comparative Advantage **CA:** If the slope is the same, no gain from trade. **Comparative Advantage:** If you have CA then do CA - Produce at a lower cost than others. - Produce more at the same cost. **Opportunity Cost:** Slope represents opportunity cost. ### Supply Shocks **Supply Shock:** A drought reduces production of flax seeds, shifting the supply curve left, increasing price. **Demand Shock:** A recession reduces consumers income, causing them to buy fewer flax seeds, shifting the demand curve left, decreasing price and quantity. ### Aggregate Demand **AD = demand curve 1 + demand curve 2** ## Consumer Surplus **MD (Marginal Demand):** Qo = 280 - 2P **MS (Marginal Supply):** QS = P - 10 **PC (Price Ceiling):** P = 60 is binding. **Supply and PC:** - QS = (60) - 10 - QS = 20 - 10 - QS = 10 **Max Willingness Price:** - QD = 280 - 2P = 0 - 2P = 280 - P = 140 **Consumer Surplus:** The amount a buyer is willing to pay for a good minus the amount the buyer pays for it. **Willingness to Pay:** The maximum amount a buyer will pay for a good. **Producer Surplus:** The amount a seller is paid for a good minus the seller's cost of providing it. ## Price Floor **Effective Price Floor:** - Minimum price above the equilibrium price. - Creates excess supply. - Sellers supply more at a higher price; buyers demand less. **Price Floors and Ceilings Have a High Cost** ## Price Ceiling **Effective Price Ceiling:** - Maximum price below the equilibrium price. - Creates excess demand (shortage). ## Demand & Elasticity **Annie's demand curve:** P = 10 - Q **Gary's demand curve:** P = 5 - Q **Seller's supply curve:** P = 4 + (1/2)Q **Aggregate / Total Demand:** - P = 10 - Q; Q = 10 - P - P = 5 - Q; Q = 5 - P - QD = (10 - P) + (5 - P) - **QD = 15 -2P** **Seller's Supply Curve:** - P = 4 + Q - 2Q = P - 4 - **QS = (1/2)P - 2** **Finding Equilibrium:** 1. Find Aggregate Demand 2. Find Sellers' Quantity Curve 3. QS+Qo (Both consumers supply + seller demand) 4. Plug into Seller's demand curve - P=10-Q = 4 + Q/2 - Q=4, P=6 **Price Elasticity of Supply:** - **Elasticity is Positive:** It is a normal good. - **Luxury Good Prices Rise Faster than Income.** **Price Elasticity of Supply over a Region (Midpoint Formula):** - *Es = ΔQD/ΔP * (Q1+Q2)/(P1+P2) **Price Elasticity of Supply at a Given Point:** - *Es=ΔQ/ΔP * (P1+P2)/2* **Types of Supply Elasticities:** - **|Es| > 1:** Elastic - **|Es| < 1:** Inelastic - **|Es| = 1:** Unit Elastic - **|Es| → ∞:** Perfectly Elastic - **|Es| = 0:** Inelastic **Income Elasticity of Demand:** - **Negative:** Inferior good - **Positive:** Normal good **Marginal Utility:** In a normal indifference curve, the slope decreases in absolute value. Affordability is determined by budget constraint; total satisfaction remains constant. ## Costs ### Marginal Revenue **MR = d(TR) / dQ** ### Profit **Profit = TR - TC** - **TR = P * Q** - **TC = FC + VC** - **VC = V * Q** - **MC = ΔTC / ΔQ** The image you uploaded contained some handwritten notes and diagrams. I have converted them to a structured markdown format, hopefully it is helpful.