ECONOMICS chapter 4

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ECONOMICS chapter 4 5

• Chapter 4- Understanding Demand
• Chapter 5- Understanding Supply

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MICROECONOMICS

• Microeconomics is a branch of economics that
  studies how the individual parts of the economy,
  the household and the firms, make decisions to
  allocate limited resources,1 typically in
  markets where goods or services are being bought
  and sold.

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FYI

• Microeconomics examines how these decisions and
  behaviors affect the supply and demand for goods
  and services, which determines prices, and how
  prices, in turn, determine the supply and demand
  of goods and services.23

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How does Microeconomics Differ from
Macroeconomics? 

• Microeconomics examines the behavior of
  individual economic entities firms and
  consumers. How do individuals make consumption
  decisions? How do firms make profits and price
  their goods and services? The focus of
  microeconomics is markets wage markets, the
  market for gasoline, rent markets, etc. 
•  

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FYI

• Macroeconomics is the study of the economy as a
  whole. Macroeconomics asks questions like Why
  does the U.S. economy generally experience higher
  rates of growth than European economies? What
  causes inflation? What effect does the national
  debt have on economic growth? etc.

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Law of Demand

• What Does Law Of Demand Mean?A microeconomic law
  that states that, all other factors being equal,
  as the price of a good or service increases,
  consumer demand for the good or service will
  decrease and vice versa. 
•  

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FYI

• Investopedia explains Law Of DemandThis law
  summarizes the effect price changes have on
  consumer behavior. For example, a consumer will
  purchase more pizzas if the price of pizza falls.
  The opposite is true if the price of pizza
  increases.

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UTILITY

• In economics, utility is a measure of relative
  satisfaction. Given this measure, one may speak
  meaningfully of increasing or decreasing utility,
  and thereby explain economic behavior in terms of
  attempts to increase one's utility.

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FYI

• Utility is often modeled to be affected by
  consumption of various goods and services,
  possession of wealth and spending of leisure
  time.

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SUBSTITUTE GOODS

• Substitute goods can be used in place of each
  other, so that as the cost of one rises,
  everything else the same, people will buy more of
  the other. For example, Coke and Pepsi.

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substitute good

• A substitute good, in contrast to a complementary
  good, is a good with a positive cross elasticity
  of demand. This means a good's demand is
  increased when the price of another good is
  increased. Conversely, the demand for a good is
  decreased when the price of another good is
  decreased.

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FYI

• If goods A and B are substitutes, an increase in
  the price of A will result in a leftward movement
  along the demand curve of A and cause the demand
  curve for B to shift out. A decrease in the price
  of A will result in a rightward movement along
  the demand curve of A and cause the demand curve
  for B to shift in.

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LAW OF SUPPLY

• A microeconomic law stating that, all other
  factors being equal, as the price of a good or
  service increases, the quantity of goods or
  services offered by suppliers increases and vice
  versa.

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FYI

• Investopedia SaysAs the price of a good
  increases, suppliers will attempt to maximize
  profits by increasing the quantity of the product
  sold.

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ELASTICITY

• In economics, elasticity is the ratio of the
  percent change in one variable to the percent
  change in another variable. It is a tool for
  measuring the responsiveness of a function to
  changes in parameters in a unit-less way..

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FYI

• Frequently used elasticity's include price
  elasticity of demand, price elasticity of supply,
  income elasticity of demand, elasticity of
  substitution between factors of production and
  elasticity of intertemporal substitution

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LAW OF DIMINISHING MARGINAL UTILITY

• What Does Law Of Diminishing Marginal Utility
  Mean?A law of economics stating that as a person
  increases consumption of a product - while
  keeping consumption of other products constant -

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LAW OF DIMINISHING MARGINAL UTILITY

• This is the premise on which buffet-style
  restaurants operate. They entice you with "all
  you can eat," all the while knowing each
  additional plate of food provides less utility
  than the one before.

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FYI

• And despite their enticement, most people will
  eat only until the utility they derive from
  additional food is slightly lower than the
  original.

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LAW OF DIMINISHING MARGINAL UTILITY

• For example, say you go to a buffet and the first
  plate of food you eat is very good. On a scale
  of ten you would give it a ten. Now your hunger
  has been somewhat tamed, but you get another full
  plate of food.

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FYI

• Since you're not as hungry, your enjoyment rates
  at a seven at best. Most people would stop before
  their utility drops even more, but say you go
  back to eat a third full plate of food and your
  utility drops even more to a three.

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FYI

• If you kept eating, you would eventually reach a
  point at which your eating makes you
  sick, providing dissatisfaction,
  or 'dis-utility'.

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EQUILIBRIUM PRICE

• The market price at which the supply of an item
  equals the quantity demanded.

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COMPLEMENTARY GOODS

• Material or good whose use is interrelated with
  the use of an associated or paired good such that
  a demand for one (tires, for example) generates
  demand for the other (gasoline, for example).

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FYI

• If the price of one good falls and people buy
  more of it, they will usually buy more of the
  complementary good also whether or not its price
  also falls.

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FYI

• Similarly, if the price of one good rises and
  reduces its demand, it may reduce the demand for
  the paired good as well. Also called
  complementary product.

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complementary good  

• Goods that usually are consumed together demand
  for one falls when the other's price rises
  demand for one increases when the price of the
  other decreases.

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FYI

• VCRs and videotapes are complementary goods if
  VCRs become cheaper, people will buy more of
  them, and, consequently, demand for videotapes
  will increase.

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SURPLUS

• Being more than or in excess of what is needed or
  required surplus grain. See synonyms at
  superfluous.An amount or a quantity in excess
  of what is needed.
• Accounting.
• Total assets minus the sum of all liabilities.

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SHORTAGES

• A deficiency in amount an insufficiency.Economic
  shortage is a term describing a disparity
  between the amount demanded for a product or
  service and the amount supplied in a market.
  Specifically, a shortage occurs when there is
  excess demand!

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SHORTAGES

• Economic shortages are related to pricewhen the
  price of an item is "too low," there will be a
  shortage. In most cases, a shortage will compel
  firms to increase the price of a product until it
  reaches market equilibrium..

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• Sometimes, however, external forces cause more
  permanent shortagesin other words, there is
  something preventing prices from rising or
  otherwise keeping supply and demand unbalanced

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SHORTAGE
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SHIFT IN SUPPLY

• an increase/decrease in government purchases -a
  reduction/increase in taxes -an increase/decrease
  in investor confidence -

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FYI

• foreigners develop/lose a taste for American
  goods or aMericans develop/lose their taste for
  foreign goods -increase/decrease in money supply

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COST OF PRODUCTION

• production cost - combined costs of raw material
  and labor incurred in producing goods cost - the
  total spent for goods or services including money
  and time and labor.

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FACTS

• The Demand CurveIntroduces the demand curve and
  lists some factors that may cause a shift in
  demand.
• Price Elasticity of DemandAn introduction to the
  price elasticity of demand. Defines price
  elasticity, its significance, and factors that
  influence it.

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FYI

• The Supply CurveIntroduces the supply curve with
  an example and a brief discussion of some factors
  that may cause a shift in supply.

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FYI

• Supply and DemandDescribes how the price level
  is determined by the crossing of the supply and
  demand curves, and how a shift in supply or
  demand will influence the equilibrium price and
  quantity.

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FACTS

• Opportunity CostIntroduces the concept of
  opportunity cost and relative price. Provides
  simple examples.

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FYI

• The Production Possibility FrontierIllustrates
  the effect of limited resources on the
  possibilities for production, and how the law of
  increasing cost influences the shape of the
  production possibilities curve.

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FYI

• Comparative AdvantageIntroduces David Ricardo's
  principle of comparative advantage. By means of
  example, shows how specialization and trade
  result in more output.