Choices and Trade-offsSupply and DemandChoices and Trade-offsSupply and DemandBasic PrinciplesElias YannopoulosSeptember 3, 2012Elias Yannopoulos Basic PrinciplesChoices and Trade-offsSupply and DemandScarcityThe central problems facing an economyWhat, an how much, to produceHow to produce itFor whom to produce itScarcity - resources are limited, and wants are unlimitedBecause of scarcity, people are forced to make choicesMaking choices means facing trade-offsMaking a choice means forgoing something elseHint - opportunity costElias Yannopoulos Basic PrinciplesChoices and Trade-offsSupply and DemandTradeTrade is a voluntary exchangeChannels goods to those who value them mostTrade helps both sides of the exchangeTrade creates valueZero sum vs Positive sumTrade is a positive sum gameElias Yannopoulos Basic PrinciplesChoices and Trade-offsSupply and DemandDemandThe buying/consuming side of the marketWant vs DemandLaw of Demand - The quantity of a good demanded isinversely related it its price, other things constantDemand Curve - the graphical representation of therelationship between price and quantity demandedDemand vs Quantity DemandedDemand - a schedule of quantities of a good that will bebought per unit of time at various prices, other things constantQuantity Demanded - a specific amount that will bedemanded per unit of time at a specific price, other thingsconstantDemand is a curve and Quantity Demanded is a pointElias Yannopoulos Basic PrinciplesChoices and Trade-offsSupply and DemandDemand Cont.Shifts Factors of DemandConsumer IncomePrices of other goodsPreferencesExpectationsTaxes and SubsidiesShifts of the demand curve vs movements along the demandcurveElias Yannopoulos Basic PrinciplesChoices and Trade-offsSupply and DemandSupplyThe selling/production side of the marketProduced vs SuppliedLaw of Supply - The quantity of a good supplied is positivelyrelated to its price, other things constantSupply Curve - the graphical representation of therelationship between price and quantity SuppliedSupply vs Quantity SuppliedElias Yannopoulos Basic PrinciplesChoices and Trade-offsSupply and DemandSupply Cont.Shifts Factors of SupplyPrices of inputsTechnologyExpectationsTaxes and SubsidiesShifts vs movement applies for Supply the same as DemandElias Yannopoulos Basic
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