Unit 1: Principles of Economics

Trade Offs: All trade is voluntary
1. Opportunity Cost: What is given up in order to get something else
  1. PPF: Production Possibility Frontier
    1. Economic Growth
    2. Economic Models
      1. Competitive Market: there are so many people in the market that no single person affects the price of a good
    3. Inefficient Market: A market that does not use all resources available so resources are wastes
      1. Market Failure: When the individual pursuit of self-interest lead to bad results for society as a whole
    4. Efficient Market: A market that uses up all resources and where people can be better or worse off
2. Supply and Demand
  1. Supply curve
    1. Movement along the supply curve
      1. Price
    2. Shifts in the Supply Curve
      1. 1. Change in input prices 2. Change in price of related goods/services 3. Changes in technology 4. Changes in expectations 5. Changes in number of producers
    3. Supply Schedule
  2. Demand Curve
    1. Shifts in the demand curve
      1. 1. Change price of related goods 2. Change in income 3. Changes in taste 4. Changes in expectations 5. Changes in number consumers
    2. Movement along the demand curve
      1. Price
    3. Demand Schedule
3. Gains from Trade
  1. Comparative Advantage: occurs when one country has a lower opportunity cost for a good than another country for the same product
  2. Absolute Advantage: occurs when country that has the ability to make more of a good because it has more resources
Resources are scarce leading people to make desicions
Incentives
1. People usually exploit opportunities to make themselves better off
Marginal Thinking
1. Do I drink coffee or have a cup of juice??
Trade creates value
Markets Move Toward Equilibrium
1. Surplus: there is more of a product produced that consumers demand
2. Shortage: there is more demand for a product than is produced by sellers
3. Total Surplus
  1. Consumer Surplus
    1. Willingness to pay
    2. The difference between the sell price and the amount a consumer is willing to pay
  2. Producer surplus:
    1. Willingness to sell
    2. the different between the sell price and the amount the producer is willing to sell
4. The area on a supply and demand curve where they intersect or the space on the schedule where the price is the same for quantity demanded or supplied and the demand and supply

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Unit 1: Principles of Economics

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