CHAPTER 1 STUDY NOTES ECON
• the economy is self-organizaign
• main characteristics of the econ - self interest, incentives, market prices and quantities and institutions
• resources are limited, they are scarce. Scarcity leads to choice and making choices leads to the existence of price. The choices to be made for this is whether or
not to produce the product and at what price because there is only a limited amount.
• every time a choice is made to buy/produce an opportunity cost is made. Opportunity cost is the cost measured in terms of goods and services that could have
been obtained instead. (this is following the pizza example on page 6)
• production possibilities boundary: illustrates the concept of scarcity/choice/opportunity cost (shown in graph on PowerPoint slide). scarcity is shown outside of
the boundary, the points on the line of the boundary are the choices that we make and the slope illustrates the opportunity cost. (shape of opportunity cost is
explained on page 8). It is the cruve that shows what is attainable and unattaibable and it shows all the possible combinations that of commodities that can be
obtained. All points that are below the boundary line are considered inefficient uses of resources.
• Four economic problems: what is produced and how (resource allocation-determines the quantities of various goods that are produced)? What is consumed and
by whom (microeconomics - allocation of resources as it is affected by the price system)? why are resources sometimes idle (human resources - unemployment.
This falls in macroeconomics)? is productive capacity growing (growth can be shown in the production possibilities boundary)?
• Flow of income and expenditure (chart is on page10)
• efficiency and equity always clash, there is always a trade off between them
• consumers and producers who are maximizers (trying to do as well as possible for themselves: to maximize their utility) make marginal decisions - whether to buy
or sell a little bit more or less of the many things that they buy/sell
• production displays two characteristics: specialization and division of labour. Specialization is when people are specializing in the different jobs. It allows each
person to do what he/she can do relatively well while leaving everything else to be done by others. Individuals abilities differ and gives a comparitive advatngae,
and the fac tthat you're focusing on one activity leads to improvements because you are learning by doing. The division of labour breaks up the processes of
production into a series of specialized tasks, each done by a different worker.
• There are three types of economics systems - traditional, free-market and command. A mixed economy is a mix of all of that, which each economy kinda has.
• in mixed economies, gov'ts intervene to correct market failures, provide public goods, and offset the effects of externalities.
• command ecomonies are when the governement completely controls everything, like communism, which doesn't work very well because the gov't must control all
economic transactions and the data must be continually updated and revised.
CHAPTER 2 NOTES
• normative statement - tells others what they OUGHT to do. They depend of judgements and opinions
• positive statements - don't depend of judgements. It is actual advice using facts, "if this is what you want to do, here is how you do it
• theories include variables: exogenous (independent), endogenous (dependent) variables. It includes a set of assumptions (motives, clause condition) and a set of
• an approach central to the study of economics is EMPIRICAL OBSERVATION (information is gained through observations/experiments).
• INDEX NUMBERS ON PAGE33!!!!!!!!!!!!!! an index number is an average that measures chagne over time of such variables as the price level and prodcution. It
is expresed in percentge relative to the base period.
index number: (value in a given period/base period)*100. and you keep repeating this process untill all the values on the chart or numbers given for all the years have
• you can graph economic data by cross sectional (a number of different observations on one variable taken in different places at the same point in time) and time
series (set of observations made at successive periods of time). THIS IS ON PAGE 35 • graphing economic theories you need a function. A function relation can be expressed verbally, in a numerical schedule (a table), an equation and in a graph. ON
PAGE 38. In an equation, things are always expressed as C=f(x) This means that c depends on x :)
• REMEMBER THAT SLOPE IS RISE/RUN
• Y = mx + b, m is the slope. X is the variable. B is y-int
• y2-y1/x2-x1 = SLOOOOOPE
CHAPTER 3 NOTES!!!
• quantity demanded of a product is a desried quantity, it is the amount of good that the consumer would LIKE to purchase, it is their desire and not a necessity
• the price of a good can affect the desire of the quantity, these things are called determinants: tastes, income, price, and expectations. These are factos of demand.
These can cause a shift in the demand curve
• law of demand - quantity and demand are negatively related. higher prices lead to lower demand and lower prices lead to higher demand. this is CETERIS
PARIBUS which actually means holding other factors constant
• quantity supplied is the amount of product that the firms would LIKE to sell. It is the amount that firms are willing to offer for sale, it is NOT the quantity that is
• price of prodcut and quantity suppied are positively correlated. the higher the price, the more producers will supply and the lower the price, the less the producers
will supply. Things that can cause a shift in the supply curve are price inputs, technology (improvements on technology, so being able to produce more because of
it), government taxes, prices of other products, number of suppliers.
• FOUR LAWS OF SUPPLY AND DEMAND:
o an increase in demand will cause an increase in equilibrium price and quantitiy
o a decrease in demand will cause a decrease in equilibrium price and quantity
o an increase in supple causes a decrease in equilbrium price and increase in equilibrium quantity
o a decrease in supply causes an increase in equilb price and decrease in equilb quantity.
• absolute price (money price) of a product is the amount of money that must be spent to acquire one unit of that product.
• a relative price is the price of one good in terms of another ( a ratio of two absolute prices)
• demand and supply curves are drawn in terms of relative price insetad of absolute.
CHAPTER 4 NOTES!!!
• demand is elastic when quantity demanded is very responsive to a change in the product's own price and inelastic when it isn't responsive to the change.
• elasticity based on the demand curve:
• things are considered elastic when there is less a change in the equilibrium price and an increase in the shift of the supply curve because of the demand curve.
THIS IS ON PAGE 76 to see the graph so that you know what i'm talking about.
• ***that n letter, called eta, is the price elasticity of demand - the measure of responsiveness of the quantity of a product demanded to a change in that product's
• THE MIDPOINT METHOD - OR TO CALCULATE THE PRICE ELASTICITY OF DEMAND the formula goes: o n=(Q1-Q0/average Q)/(P1-P0/avg price) ***for th