Unit 1: Basic Economic Concepts - Total Revenue

January 30, 2018

Total Revenue

• Total Revenue = P (price) x Q (quantity)
• Fixed Costs: A cost that does not change no matter how much of a good is being produced.
• Example: salary, mortgage, insurance
• Variable Costs: A cost that rises and falls depending upon how much is produced.
• Example: Electricity bill, cell phone bill
• Marginal Costs: The cost of producing one more unit of a good.
• Marginal Revenue: Additional income from selling another amount of a good.
• Purpose: make additional profit
• Revenue: what you bring in
• Cost: what you spend

• Formulas:
• TFC (total fixed cost) + TVC (total variable cost) = TC (total cost)
• AFC (average fixed cost) + AVC (average variable cost) = ATC (average total cost)
• TFC (total fixed cost) / Q (quantity) = AFC (average fixed cost)
• TVC (total variable cost) / Q (quantity) = AVC (average variable cost)
• TC (total cost) / Q (quantity) = ATC (average total cost)
• /⃤ TC (change in total cost) /  ⃤ Q (change in quantity) = MC (marginal cost)

Unit 1: Basic Economic Concepts - Price Elasticity of Demand

January 26, 2018

Price of Elasticity of Demand

• Purpose: Tells how buyers will cut back on increase their demand for a good when the price rises or falls.

• 3 Types of Price Elasticity of Demand: 
• Elastic Demand: When demand will change given a small change in price.
• "Wants"
• Example: Coca - Cola, steak, furcoat
• Many substitutes
• E > 1
• Inelastic Demand: A product is said to be inelastic if the demand for it will not change regardless of price.
• "Your needs"
• Example: gas, milk, Insulin, water
• Few substitutes
• E < 1
• Unitary Demand:
• Perfect Society 
• E = 1

Unit 1: Basic Economic Concepts - Demand and Supply

January 23, 2018

Demand and Supply

Demand 

• Demand Schedule: 

• Demand Curve: 

• Demand: The quantities that people are willing and able to buy at various prices.
• The Law of Demand: There is an inverse relationship between price and quantity demanded.
• P↑, Q↓ OR P↓, Q↑
• What causes a "change in quantity demanded"?
• ⃤  in price
• Determinates of Demand: 
1. ⃤  in buyer's taste
2. ⃤  in number of buyers (population)
3. ⃤  in income
• Normal Goods: Goods that people buy more of when their income rises.
• Inferior Goods: Goods that people buy less of when their income rises.
• Example: Instead of instant noodles, I buy fettucine.
4. ⃤  in price of related goods
• Substitute Goods: Goods that serve roughly the same purpose to buyers.
• Example: Coca - Cola and Pepsi
• Complimentary Goods: Goods that are often consumed together
• Example: Hamburger and fries
5. ⃤  in expectations (future)

Supply

• Supply Schedule: 

• Supply Curve: 

• Supply: The quantity that producers or sellers are willing and able to sell at various prices.
• The Law of Supply: There is a direct relationship between price and quantity supply. 
• P↑, Q↑ OR P↓, Q↓
• What causes a "change in quantity supplied"?
• △ in price
• Determinates of Supply: 
1. △ in the number of sellers/ suppliers
2. △ in the costs of production/ resources prices
3. △ in technology
4. △ in weather
5. △ in taxes or subsidies (money government gives)
6. △ in expectations

Buyers: 

• Price Ceiling: Legal Maximum price meant to help buyers
• Keeps prices from getting too high
• 4 Consequences of Price Ceilings set too low:
1. lower prices for some consumers
2. shortages
3. illegal sales above the equilibrium
4. long lines for the buyers
• Example: rent control

Sellers: 

• Price Floor: Legal minimum price meant to help sellers.
• Keep product prices from falling
• 4 Consequences of a Price Floor:
1. higher product prices
2. surplus
3. higher taxes
4. waste - produced but never used
• Example: minimum wage

Unit 1: Basic Economic Concepts - Production Possiblities Graph

January 18, 2018

Production Possibilities Graph

• Production Possibilities Graphs [PPG, PPC (curve), or PPF (frontier)] 
• Show alternate ways to use resources
• Shows the most that society can produce if it uses every available resource to the best of its ability.
• Key Assumptions: 
1. Full Employment
• 80 - 90% factor capacity
• 4 -5% unemployment rate
2. Productive Efficiency
3. Fixed Resources
1. Land
2. Labor
3. Capital
4. Fixed Technology
5. No international trade
6. 2 goods produced
   

• Point A: Attainable, but inefficient
• Point B, C, and D: Attainable and efficient
• Point X: Unattainable

• Movements of PPG:
• Inside of the Curve: 
• Located on Point A
• Attainable, but inefficient
• Unemployment- have resources but no people OR have people but no resources
• Underemployment
• Underutilization
• Recession
• Along the Curve/ Frontier:
• Located on Point B (more production of guns than butter), D (equal production of guns and butter), And C (more production of butter than guns)
• Attainable and efficient
• Can shift along the curve
• Shifts of the Curve:

• Opportunity Cost: Next best alternative that you must give up in order to get something else.
• Law of Increasing Opportunity Cost: As you produce more of one good, the opportunity costs (the forgone production of another good) will increase.
• Concave VS. Constant PPG: 
• Concave PPG:
• Shows Growth

• Constant PPG: 
• Stays the same

• Productive VS. Allocative Efficiency:
• Productive Efficiency: Products are being produced in a least costly way.
• Allocative Efficiency: Products being produced are the ones most desired by society.

Unit 1: Basic Economic Concepts - Scarcity, Factors of Production

January 10, 2018

Scarcity, Factors of Production

Vocabulary:

• Scarcity: It is the fundamental economic problem that all societies face. The condition in which out wants are greater than the limited resources.
• Economics: Social science concerned with the efficient use of limited resources to achieve maximum satisfaction of economic wants.
• 1st Pillar of Economic Wisdom: Nothing in our material world can come from nowhere or go nowhere, nor can it be free; everything in our economic life has a source, a destination, and a cost that must be paid.
• Five Key Economic Assumptions: 
1. Society's wants are limited, but ACC resources are limited (scarcity).
2. Due to scarcity, choices must be made. Every choice has a cost (trade-off).
3. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest".
4. Everyone makes decisions by comparing the marginal benefits of every choice.
5. Real-life situations can be explained and analyzed through simplified models and graphs
• Marginal: 
• Marginal Cost: The increase or decrease in the total cost of a production run for making one additional unit of an item.
• Marginal Benefits: An increase in an activity's overall benefit that is caused by a unit increases in the level of that activity, all other factors remain constant
• Ceteris Paribus: All other things being  unchanged or constant. Used in economics to rule out the possibility of "other" factors changing the specific casual relation between two variables is focused.
• Opportunity Cost: The potential benefit that is given up as you seek an alternative course of action.
• Macroeconomics:
• Study of large economy as a whole or in its basic subdivisions (National Economic growth, Government Spending, Inflation, Unemployment, etc.)
• Inflation
• GDP
• Minimum Wage
• International trade
• Microeconomics:
• Study of small economic units such as individuals, firms, and industries (competitive markets, labor markets, personal decision making, etc.)
• Supply 1st demand
• how firms/houses react to economics
• Utility: Satisfaction derived or expected to be derived from the consumption of goods and services.
• Allocate: Analysis of how scarce resources ('factors of production') are distributed among producers, and how scarce goods and services are apportioned among consumers.
• Price: The amount of money that has to be paid to acquire a given product.
• Cost: Monetary valuation of effort, material, resources, time, and utilities consumed, risk incurred, and  opportunity fargone in production and delivery of a good or service.
• Investment: A component of aggregate demand, it includes all spending on capital equipment, inventories, and technology by firms.
• Goods: A commodity or service that can be utilized to satisfy human wants and that has exchange value.
• Consumer Goods: Products that satisfy our wants directly.
• Capital Goods: All manufactured aids used in producing consumer goods.
• Services: A type of economic activity that is intangible, is not stored and does not result in ownership.
• Explicit Costs: Direct payment made to others in the course of running a business, such as a wage, rent, and materials.
• Implicit Costs: Any cost that has already occurred but is not necessarily shown or reported as a separate expense.
• Positive vs. Normative Economics 
• Positive Economics: Claims that attempt to describe the world as is. It's very descriptive and based of facts.
• Example: Minimum wage laws causes unemployment
• Normative Economics: Claims that attempt to prescribe how the world should be. It's very prescriptive and based upon opinion.
• Example: Government should raise the minimum wage.
• Wants and Needs
• Wants: Desires of the citizens
• Needs: Basic Requirements for survival (food, water, shelter)
• Shortage: Quantity demanded is greater than quantity supplied.
• Example: When a store doesn't have enough of a certain item to satisfy all individuals.
• Surplus: When a store has a lot of an item but a small demand. For it to sell, the price drops to sell out.
• Factors of Production
1. Land- natural resources
2. Labor- work exerted
3. Capital
• Physical Capital: Human-made objects used to create other goods and services
• Human Capital: Knowledge in skills that a worker gains through education and experience.
4. Entrepreneurship- have to be a risk taker