Elasticity and floor and celing

Elastic demand-Greater than one
Inelastic demand less than one
Unitary elasticity- =1

 Formula

1. New-old/old  in quantity
2. New-old/old in price
3. Change in quantity/change in price
4. Take the absolute value of number 3

Price ceiling- the maximum price that can be legally charged for a good or a service. At the bottom
Price floor-minimum price for a good  or a service. At the top


They are opposites.

• Expansion-real output in the economy
• peak- real output is at its highest
• Contractionary-out put is decreasing
• Trough- the lowest point of real GDP

Supply and Demand

Supply and demand have an inverse relationship.

• Supply goes to the sky
• Demand goes to the sand

Demand- the quantities that people are willing to buy at various prices.

Change in demand

• Change in buyers taste
• Change in the number of buyers
• Change in income
• change in the price of related goods
• Change in expectation

Supply-the quantities that  producers are able to produce at various prices

Change in supply

• Change in technology
• change in takes or subsides
• Change in expectations
• Change in the number of supplies
• Change in the weather
• Change in the cost of production

Production possibility graph

Law of Increasing Opportunity Cost

• When the resources are shifted from making one goods or services to another, the cost of producing, the second items increases.
• This occurs because not all resources are equally suited for production of all goods or services.

Four Keys Assumption of Production Possibility

1. only two products can be produced
2. full employment of resource
3. Fixed resources
4. Fixed technology

Production possibility graph                                      Point A-Inside the curve,attainable but inefficient. 

  This video shows you how to read a (PPG)

usually caused by famine, war, and unemployment

Point B&D- on the curve, attainable and efficient

Point C- outside the curve. Unattainable. Caused by Technology and economic growth

Goods vs Services
    Goods

• consumer goods- goods intended for final use
• capital goods- items used in the creation of other goods

Services-work that is being performed by someone else

Factors of production

1. Land- natural resources
2. Labor- work force
3. Capital-  Human capital: Knowledge and skill a worker gains through experience. Physical capital: human made objects used to create other goods and services
4. Entrepreneurship- risk takers and intensive

.Opportunity cost
  The most desirable alternative given up by making a decision.

Production Possibilities
Production possibilities Graph- Shows alternative ways to use resources
PPF- production possibility frontier
PPC-production possibility curve

Productive Efficiency Vs. Allocative Efficiency

• Productive Efficiency-produce resource at the lowest cost. At any point on the curve
• Allocative Efficiency-combination of most desired by society.\

Introduction to Macroeconomics

Macroeconomics- is the study of the major components of the economy.
 -inflation    -unemployment
-GDP      -supply and demand 

Microeconomics-the study of how households and firms make decisions.
-supply and demand      -market structure  

Positive Vs Normative

• Positive- attempting to describe the world as it is.  (Fact) Ex: minimum wage causes unemployment
• Normative-describes how the world should be.Ex:the government should raise minimum wages

Wants and Needs

• Wants-desires of citizens. Much broader than needs.
• Needs- basic requirements for survival

Scarcity vs shortage

• Scarcity-most fundamental economic problem that all society face.
• Shortage- a situation where quantity demand is greater than quantity supplied.

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