Always exists and will continue to exist even as technology continues to advance
Scarcity stems from?
incompatibility between limited resources and unlimited wants
3 Key Economic ideas
people are rational, people respond to incentives, people optimize at the margin
changes in quantity used for a good or service "extra" or "additional
At the margin?
"all or nothing"
3 fundamental economic questions
What will be produced, how will it be produced and who will receive the goods
Houshoulds and firms interacting in markets allocate economic resources
Households, firms, and government decide
Limited resources and income?
In a market system, prevents people from getting as many goods and services as they wish
When a good or service is produced at its lowest cost
firms produce the good and service consumers prefer most
Voluntary Exchange occurs when?
All transactions are an improvement for both parties, every one is well off
A third variable can influence a graph by?
It can shift the slope to show positive or negative relationships
The highest valued alternative that must be given up to engage in an activity
A point on the production possibilities frontier (ppf)
Is a point of production
The bowed curve on the ppf
shows the attainable production points
What does the slope of ppf mean?
Increasing marginal opportunity cost, the basic trade off of items to create one thing
PPF bowed shape indicate?
Increasing marginal opportunity, because increasing the production of one thing requires to decrease the production of another
The ability of an individual, a firm, or country to produce a good or service at a lower opportunity cost than competitors
Competitive market equilibrium
Economically efficient level of output is produced, economic surplus is maximized- there is no deadweight loss, the marginal benefit equals the marginal cost of the last unit sold
Additional benefit and additional cost
consumer surplus and producer surplus is said to measure the net benefit from participating markets
Decrease price in a complement
Increases the demand for another
Leftward shift in demand
Is an decrease in demand, hypothetically consumers income is lower
means that it will eventually regain, the shortage is not permanent
Rise over Run
Explains the measurement of the slope between elasticity of demand
5 determinants of price elasticity of demand
Availability of close substitutes, passage of time, luxuriess versus necessities, definition of the market, share of the good in consumers budget
Perfectly elastic demand
Is perfectly horizontal to the qty, and is equal to infinity
perfectly inelastic demand
Is perfectly vertical to price and is equal to zero
Is if the number is greater than one
If the number is less than one but not zero
The enjoyment or satisfaction people receive from consuming goods and services
Economic Model predicts consumers will do two things
Follow the rule of equal marginal utility per dollar, total spending on all goods must equal to the amount available to be spent
Law of Demand implies
Holding everything lease constant that price of a product falls, the quantity demanded will increase and vice versa
Price decrease on normal good
Income effect (IE) price falls, income feels higher, QTYD increases Substitution effects (SE), price falls, good relatively cheaper, QTYD increases
Price decrease on inferior good
Income effect (IE), price falls, income feels higher, QTYD decreases Substitution effect (SE) prices falls, good relatively cheaper, QTYD increases
A curve that show the combinations of consumption bundles that give the consumer the same utility
Marginal Rate of Substitution
The rate at which a consumer would be willing to trade off one good for another