https://www.youtube.com/watch?v=0rVcgDQQJZA

Circular Flow Diagram of a Market Economy

January 16, 2015

Equilibrium: It is the point at which the supply curve and the demand curve intersect.

Shortage: Quantity demanded leads to quantity surplus

Surplus: QS>QD

Price Floor: Government price control on how low a price can be charged for a product.

Price Ceiling: Government imposed limit on how high a price is charged.

Fixed Cost: Cost that does not change no matter how much is produced.

Variable Cost: Cost does change depending on how much is produced.

Supply and Demand

DEMAND is the quantities that people are willing and able to buy at various prices.
SUPPLY is the quantities that producers or sellers are willing and able to buy at various prices.

• Elasticity of Demand: tells how drastically buyers will cut back or buy more of a particular good
• Elastic Demand: A product that is elastic when demand will change greatly when given a small change in price. 
• Inelastic: product said to be inelastic if your demand for it does not chnage 
• Milk, gas, medicine. 

What Are the 5 Key Assumptions?

1. Two goods are produced
2. Full employment
3. Fixed resources- Land, labor, capital*
4. Fixed state of technology*
5. No international trade

Basics of Economics... cont'd

Tradeoff: alternatives that we give up when we choose one course of action over another.

Opportunity Cost: Choosing our next best alternative.

Production Possibility Curve: Shows the most that society can produce if it uses every available resource tot he best of its ability.

Factors of Production

1) Land
2) Labor
3)Capital
4) Entrepreneurship

1. Natural Resources
2. Work force
3. Human: knowledge/skills
    Physical: human made objects
4. Having product, being inventive

The Basics of Economics

• Macroeconomics V. Microeconomics
• MACRO: Study of the major components of the economy
• Inflation, supply&demand, wages, GDP
• MICRO: Study of how households and firms make decisions and how they interact with the market. 

• Positive Economics V. Normative Economics 
• POSITIVE:  claims that attempt to describe the world as is. (Very descriptive)

• NORMATIVE: Claims that attempt to predict how the world should be (opinion based) 

• Needs V, Wants
• Needs: Basic requirements for survival 
• SCARCITY: fundamental economic problem that all society face;satisfying unlimited wanted with limited resources.
• SHORTAGES: Situation where quantity demanded > quantity supply

• Goods V. Services 
• GOODS: Tangible, bought, sold, traded; 
• Consumer goods- intended for final use by consumer
• Capitol goods- items used in creation of other goods
• SERVICES: Work performed for someone else