Unit 1 - Supply and Demand

DEMAND

The relationship between demand and prices is always in inverse. When prices go up, people buy less. When prices go down, they'd buy more.

What is demand?

Demand is the quantity that buyers are willing to able to buy at various prices.

Here is an example of the demand graph. When the price is at its highest, the quantity demanded is at its least. So the cause in change of quantity demanded is the price.

What causes a "change in demand"?

- Change in buyer taste

- Change in population

- Change in income

- Change in price of related goods:

+Substitute goods: goods that serve the same purpose (i.e. cheetos, funyuns)

+Complimentary goods: goods that often consumed together (i.e. tortilla chips, salsa)

- Change in expectation

Normal goods and Inferior goods:

Normal goods: good that buy buy more of when income rise (i.e. beef)

Inferior goods: good that buyer buy less of when income rise (i.e. spam)

SUPPLY

Supply is different from demand, producers want to sell more with a high price. So it is a direct relationship between price and quantity supply.

What is supply?

Supply is a quantity that producer or seller are willing and able to produce/sell at various prices.

 The supply graph above shows the direct relationship between its price and quantity. Ex: the more land you buy, the more it cost you to pay. So the cause in change of quantity supplied is when the price change.

What causes a change in supply?

- Change in technology

- Change in taxes of subsidies

- Change in number of sellers

- Change in resource prices/cost of production

- Change in weather

- Change in expectation

ELASTICITY OF DEMAND

The elasticity of demand tell how drastically a buyer will cut back or buy more

 Elastic demand : E > 1

A product that is elastic when demand will change greatly give small change in price. (want)

 Inelastic demand: E < 1

Demand will not change regardless of price. (need)

Unit elastic: E = 1

Here we have the formula for the Price Elasticity of Demand (PED)

1. (new quantity - old quantity) / old quantity

2. (new price- old price) / old price

3. step 1 / step 2 = PED [take the absolute value only]

Unit 1 - Production Possibility Curve

What is Production Possibility Curve (PPC)?
It is a graph that is showing the most a society can produce if it uses every available sources to the best of its ability. What does it actually mean? It means that we are using all the natural/man made resources efficiently with out wasting any and with full employment.

When to use the Production Possibility Graph?
Assume that there are ONLY 2 goods are produced with FULL employment and fixed resources. It needs fixed state of technology (factory, machines,...) and NO international trade!

 

As the graph shown, the relationship between 2 goods (x and y axis) is described by the opportunity cost.
Opportunity cost is when we choose our next best alternative. Or we can say it as a trade offs, which means we have to give up something to get another.

• A: the products are attainable but is produced inefficiently, hence it remains inside the curve

• B: the products are attainable, are produced efficiently but are making more of goods y.
• C: the products are attainable, are produced efficiently but are making more of goods x.
• D: both products are attainable and are produced efficiently.
• X: It's NOT possible to make/produce.

When can we move up to point X?
-Technology improvement
-Economic growth
-Discovering new resources


When are we at point A?
-Decrease in population
-Under employment
-War, famine, disasters,...

Unit 1 - Fundamental Knowledge

What is Macroeconomic?

It is the study of major components of the economy (i.e. inflation, supply and demand, wages, GDP,...) - the very basic info that will come in handy once you have to deal with money and financial matters!

There are some vocab that you will need to know and understand

Positive Economic: It is claim to be very descriptive and based on facts alone.

Normative Economic: It attempts to prescribe how the world should be and is based on opinion.

Needs and Wants: The words explain it all. Need is the basic requirements for survival (i.e. food, shelter, water,...) In other hand, wants are the things that we desire and aren't necessarily needed (i.e. iPod, video games,...)

Scarcity and Shortage

Scarcity is a fundamental economic problem that all society face, because it's trying to satisfying unlimited want with limited resources. 

Shortage is a situation where quantity demanded is greater than quantity supplied. 

-For example: your parents are in a budget and aren't able to buy, say, pork for meal as your family usually do; so your family have to live on ramen noodles for a week before the pay check.

Goods: tangible, can be bought, sold. traded and can be produced

Services: the work that is performed for someone else

Consumer goods and Capital goods

Consumer goods: goods that are intended for final use by consumer (i.e. box of cereal)

Capital goods: items that are used in the creation of other goods, factory machinery (i.e. boxes to store cereal)

Factors of Production

There are 4 factors of production

-Land: natural resources

-Labor: work force

-Capital: +Human capital: knowledge and skill a worker gain through education & experience

               +Physical capital: human made objects used to create other goods & services 

-Entrepreneurship