Principle 1: People face trade-offs.
Principle 2: The cost of something is what you give up to get it.
Principle 3: Rational people think at the margin.
Principle 4: People respond to incentives.
Principle 5: Trade can make everyone better off.
Principle 6: Markets are usually a good way to organize economic activity.
Principle 7:Governments can sometimes improve market outcomes.
Principle 8: A country's standard of living depends on its ability to produce goods and services.
Principle 9: Prices rise when the government prints too much money.
Principle 10: Society faces a short-run trade-off between inflation and unemployment.
CHAPTER 4: USE DIAGRAM TO ANALYZE THE EQUILIBRIUM PRICE AND THE EQUILIBRIUM QUANTITY.Summary: To get equilibrium price and quantity,
1) Solve for the demand and supply function in terms of Q (quantity).
2) Set Qs (quantity supplied) equal to Qd (quantity demanded).
3) Solve for P, this is your equilibrium Price.
4) Plug your equilibrium price into either your demand or supply function (or both) and solve for Q, which will give you equilibrium quantity.
It is where quantitydemanded equals quantity supplied Say you have an equation for quantity demanded (Qd) and quantity supplied (Qs) Qd= 11 - 2p and Qs= -5 + 2p you set the two equations equal to each other to find the price (p) 11 - 2p = -5 + 2p 16
Price equilibrium is found where supply and demand are equal. This is the point where both sellers and buyers are happy with the price and quantity.
CHAPTER 5: THE PRICEELASTICITY OF DEMAND AN ITS DETERMINANTS.
1. Classification of Elasticity
a. When the elasticity is greater than one, the demand is considered to be elastic.
b. When the elasticity is less than one, the demand is considered to be inelastic.
c. When the elasticity is equal to one, the demandis said to have unit elasticity.
a. When the elasticity is equal to zero, the demand is perfectly inelastic and is a vertical line.
b. When the elasticity is infinite, the demand is perfectly elastic and is a horizontal line.
CHAPTER 6: PRICE CEILINGS AND PRICE FLOORS.
Price Floors are minimum prices set by the government for certain commodities and services that itbelieves are being sold in an unfair market with too low of a price and thus their producers deserve some assistance. Price floors are only an issue when they are set above the equilibrium price, since they have no effect if they are set below market clearing price. When they are set above the market price, then there is a possibility that there will be an excess supply or a surplus.
PriceCeilings are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them. Price ceilings only become a problem when they are set below the market equilibrium price. When the ceiling is set below the market price, there will be excess demand or a supply shortage.
CHAPTER 7: CONSUMERSURPLUS AND PRODUCER SURPLUS.
Recap on the ideas
Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually pay (the market price).
Producer surplus is the difference between what producers are willing and able to supply a good for and the price they actuallyreceive. The level of producer surplus is shown by the area above the supply curve and below the market price.
CHAPTER 14: CHARACTERISTIC OF PERFECT COMPETITION PROFIT MAXIMIZATION PRINCIPLE OF PERFECTLY COMPETITIVE FIRMS.
A perfectly competitive firm is presumed to produce the quantity of output that maximizes economic profit--the difference between total revenue and total cost. This...