Economics Study of how we handle scarcity and study of how we exchange goods and services Positive economics Objective economic analysis Normative economics Non objective expresses value judgements Scarcity The idea that explains that nothing is unlimited money resources labor time except our wants Ceteris paribus All else being equal Trade offs Created by scarcity what you give up when you make a decision Macroeconomics branch of economics that handles larger scales nation wide international and large corporate economies Aggregate data A set of data that is created from several others Microeconomics Branch of economics that handles smaller scales cities or small companies Marginal Additional Circular flow model The diagram that shows how everything and ev eryone is connected All money that you spend will somehow go back to something you get Govern ment households companies and the rest of the world are involved Markets include factor mar kets product markets and financial markets Full employment All available resources are being used Full production All resources being used in order to provide maxi mum fulfillment for our unlimited wants Factors of production Land labor capital and entrepreneurship every thing involved in production Productive resources Anything that adds value to a company Land Any resource that comes from the world grass oil mud anything Labor The physical work that goes toward production Capital The money and other resources that are required to produce Entrepreneurship The knowledge and innovation required to pro duce Economic growth the increasing ability of the economy to satisfy the wants of people Economic system The relationship between people the government businesses and the rest of the world Ex tradi tion command market economies Traditional economy Barter and agriculture maintaining the economic ways of traditional villages Market economy People choose basic questions of production are decided BY a firm Consumer vs capital goods Consumer goods are used by customers for per sonal use Capital goods are used to produce other goods Demand curve Graph showing how the demand changes with price Supply curve Graph showing how the supply changes with price Surplus More produced than purchased the amount left over Shortage Less produced than purchased the amount needed to fulfill everyone s wants and needs Demand schedule Lists the the price at which a consumer will pur chase a certain amount of a product lists the val ues that are illustrated in the demand curve Supply schedule Lists the the price at which a firm will produce a certain amount of a product lists the values that are illustrated in the supply curve Equilibrium price The price at which the supply and demand curve intersect Equilibrium quantity The quantity at which the supply and demand curve intersect Quantity demanded A specific point on the demand curve Factors of demand What influences the demand curve price income substitutes tastes and preferences expectations and number of consumers Change in demand curve The demand curve will shift to the left decrease or right increase when the entire set of data changes people are willing to buy more less quan tities at ALL prices Change in quantity demanded The change in a point on the demand curve move ment along the curve Law of supply Producers will be more willing to produce the higher the price and less willing to produce with a lower price Factors of supply Price of inputs technology producer expectations number of producers Change in supply curve A shift of the entire curve the willingness of pro ducers to produce at different prices change not the price itself Quantity supplied A specific point on the supply curve Change in quantity supplied A change in the point on the graph a change in the price being charged and therefore quantity be ing supplied but not the whole graph Price ceiling A maximum amount that can be charged for a spe cific product enforced by the government Price floor A minimum amount that can be charged for a spe cific product enforced by the government Normal goods The products that you would buy more of if you had enough money Inferior goods The goods that you only buy as a necessity be cause you can t afford normal goods Cost of production A theory that the price is determined by the price of the inputs Profit expectations What a company expects to make effects supply substitute good A good that can be used in place of another This effects the demand of a product Rationing function of price The idea of the higher the price the less con sumed used to ration goods Complementary goods Goods that can be used in conjunction with others For example the cost of shoe laces will effect the demand of shoes Market clearing price A low price one that will help all items be sold Qs Qd When quantity supplied equals quantity de manded equilibrium Command economy Everything is controlled by the government basic questions of production are decided for a firm Opportunity cost The next best thing that you gave up in making a decision Law of demand Consumers buy more with a lower price and less with a higher price Price elasticity of demand Can show the importance of a product a mea sure used to show the elasticity of the quantity de manded of a product to a change in it s price Elastic demand if the price goes up drastically the quantity de manded will fall drastically unimportant Inelastic demand changes in price have little effect on the quantity demanded important product Unit elasticity When an increase in price causes the same per cent decrease in quantity demanded and total revenue remains unchanged Perfectly elastic demand Any change in price no matter how small will re sult in the demand going to zero Total revenue test A test for the elasticity of a product Mid point formula for elasticity Another method of calculating elasticity Price elasticity of supply Responsiveness of quantity supplied to a change in price Market period Period of time in which the inputs are fixed and the quantity of output is fixed Short run A period of time short enough that at least one in put is fixed Long run All quantities can be varied Cross elasticity of demand Responsiveness of good x to a change in price of good y Income elasticity measures the relationship between a change in qd of good X and a change in income Black market A market which operates outside a formal one Income effect The change in consumption resulting from a change in real income