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| value of the next best thing that we forgo |
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An examination of the additional benefits of an activity compared to the additional costs of that activity
determ |
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| he change in total cost that arises when the quantity produced changes by one unit |
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| how much a product benefits the buyer |
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| optimal allocation equalizes the returns of the marginal (or last) unit to be transferred between all the possible uses |
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| normative vs positive econ |
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norm-how economy should be
posit-oriented facts, cause and affect |
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| why did command system fail? |
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| know that square flow chart |
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| resources more important than money |
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| inverse relationship-as price increases, quantity decreases |
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| total of quantities demanded |
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consumer tastes
# of buyers
consumer expectations (change in thought of market)
income-normal or inferior
price of related goods-subsittutes, compliments |
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| increase in price will increase quantity supplied and vice versa |
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| We sum the quantities supplied by each producer at each price. That is, we obtain the market supply curve by “horizontally adding” the supply curves of the individual producers |
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price of resources
technology
taxes/subsidies
price of other goods
producer expectations
# of sellers |
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| where supply and demand meet |
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| price elasticity of demand |
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| responsiveness or sensitiivty of consumers to a changing price |
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| (change in quantity demanded/original quantity demanded)/(change in price/original price) |
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total amount the seller receives from the sale of a product in a particular time period; it is calculated by multiplying the product price (P) by the quantity sold (Q). In equation form:
PxQ |
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| determinants of elasticity |
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substitutability
% of income
luxury vs. necessity
time factor |
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| Price Elasticity of Supply |
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((change in quantity supplied)/(sum of quantity/2))/((change in price)/(sum of price/2))
how easily producer can switch resources into alternates |
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measure of how sensitive consumer purchases of good x are in response to a change in price of good y
E=xy
((change demanded of x)/(sum of quantities/2))/((change in price of y)/(sum of prices/2)) |
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measures the degree to which consumers respond to chnage in income by purchasing more or less of a good
% change elasticity/%change in income |
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| intention of buyers and sellers match |
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| quantity where intentions of buyers and sellers match |
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tr moves opposite of price PQ
price goes down, tq goes up |
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| trgoes down as price does |
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at a lower price buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive.
Exy>0 |
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| Because complementary goods (or, simply, complements) are used together, they are typically demanded jointly. Examples include computers and software, cell phones and cellular service, and snowboards and lift tickets |
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