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1. Scarcity: Resources used to produce goods are limited

2. Economics: Study of choices when there is scarcity

3. Factors of Production: resources used to produce goods and

services, also known as production inputs or resources

1. Natural resources: resources provided by nature and use to

produce goods and services

2. Labor: Human effort, including both physical and mental

effort, used to produce goods and services

3. Physical Capital: Stock of equipment, machines, structures,

and infrastructure that is used to produce goods and services

4. Human Capital: Knowledge and skills acquired by a worker

through education and experience an used to produce goods and services

5. Entrepreneurship: effort used to coordinate the factors of

product to produce and sell products

4. Positive analysis: answers the questions, What is or will be?

5. Normative analysis: answers the question, what ought to be?

6. Economic model: Simplified representation of an economic

environment, often employing a graph

7. Variable: measure of something that can take on different values

8. Four elements of economics:

1. Use assumptions

2. Ceteris paribus: all other variables are held fixed

3. Marginal change: how will a small, one unit change in one

variable affect another variable

4. People act rationally

 9. Macroeconomics: Study of a nation's economy as a whole,
focusing on the issues of inflation, unemployment, and economic growth

10. Microeconomics: Study of choices made by households, firms, and

government and how these choices affect the markets for goods and services

11. Positive relationship: Relationship in which two variables move in

the same direction, also called a direct relationship

12. Negative relationship: Relationship in which two variables move in

opposite directions, also called an inverse relationship

13. Slope of a curve: Vertical difference between two points, called

rise, divided by the horizontal difference, called run




1. Opportunity cost: the cost of trade in terms of another variable

2. Production possibilities curve: A curve that shows the possible

combinations of products that an economy can produce, given that its productive
resources are fully employed and efficiently used

3. Marginal benefit: Additional benefit resulting from a one unit,

small increase in some activity

4. Marginal cost: Additional cost resulting from a une unit, small

increase in some activity

5. Voluntary exchange: an exchange that makes both people better

off

6. Diminishing returns point: Point on a graph which before this point

output will increase at an increasing rate and beyond this point output will
increase at a diminishing rate

7. Nominal value: face value of an amount of money

8. Real value: Value of an amount of money in terms of what it can

buy

9. Real Nominal Principle: People care about the real value of goods
not the nominal value



 1. Perfectly Competitive Market: A market with many sellers and
buyers of a homogeneous product and no barriers to entry.

2. Quantity Demanded: The amount of a product that consumers are

willing and able to buy.

3. Demand schedule: A table that shows a relationship between the

price of a product and the quantity demanded, ceteris paribus.

4. Individual Demand Curve: A curve that shows the relationship

between the  


 and 

  

 , ceteris paribus.

5. Law of Demand: The  

  

 between  and


  , ceteris paribus.

6. Change in Quantity Demanded: A change in the quantity

consumers are willing and able to buy when the price changes; represented
graphically by 
  


    .

7. Market Demand Curve: A curve showing the relationship between

 and 

  
 , ceteris paribus.

8. Quantity Supplied: The amount of a product that firms are willing

and able to sell.

9. Supply Schedule: A table that shows the relationship between the

 


and 

 , ceteris paribus.

10. Individual Supply Curve: A curve showing the relationship

between  and 

  , ceteris paribus.

11. Law of Supply: The 


  

 between  and


 , ceteris paribus.

12. Change in Quantity Supplied: A change in the quantity firms are

willing and able to sell when the price changes; represented graphically by

  


   .

13. Minimum Supply Price: The lowest price at which a product will
be supplied.

14. Market Supply Curve: A curve showing the relationship between

the market  and 

 , ceteris paribus.
 15. Market Equilibrium: The situation in which the 


   
 

  at the prevailing market price.

16. Excess Demand (Shortage): A situation in which, at the prevailing

price, the 

    
 

 .

17. Excess Supply (Surplus): A situation in which the 



   
 

  at the prevailing price.

18. Change in Demand: A 



    caused by the
change in a variable other than the price of the product.

19. Normal Good: A good for which an    
    

 .

20. Inferior Good: A good for which an    
    

 .

21. Substitute: Two goods for which an    in the price of one

good     the demand for the other good.

22. Complements: Two goods for which a    in the price of one

good     the demand for the other good.

23. Change in Supply: A 



   caused by a change
in a variable other than the price of the product.

     


  


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Income, with normal good

Increase

Income, with inferior good

Decrease

Price of a substitute good

Increase

Price of a complementary good

 Decrease

Population

Increase

Consumer preference for good

Increase

Expected future price

Increase

     


  


 # 

   "



Income, with normal good

Decrease

Income, with inferior good

Increase

Price of a substitute good

Decrease

Price of a complementary good

Increase

Population

Decrease

Consumer preference for good

Decrease

Expected future price

Decrease

     


  


 !

 
    "



Wage

Decrease

Price of materials or capitol

Decrease

Technology advance

Increase

Government subsidy

Increase

Expected future price

Decrease

Number of producers

Increase

     


  


 # 
$ 

   "



Wage

Increase

Price of materials or capitol

Increase

Tax

Increase

Expected future price

Increase
 Number of producers

Decrease

V%
c

  
 

  


 
 

 
 




Increase in demand

Increase

Increase

Decrease in demand

Decrease

Decrease

Increase in supply

Decrease

Increase

Decrease in supply

Increase

decrease


&

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    +, 
 


elastic demand= Price elasticity of demand > 1

percentage change in quantity > percentage change in price.

Inelastic demand < 1

percentage change in quantity < percentage change in price

 Unit elastic demand = Price elasticity of demand = 1

percentage change in quantity = percentage change in price

Perfectly inelastic demand= Price elasticity of demand = 0

percentage change in quantity = 0

Perfectly elastic demand= Price elasticity of demand = infinity

percentage change in price = 0




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-



  
  
 

  
  
 

Availability of Substitutes

Many

Few

Passage of time

Long time

Short time

Fraction of consumer budget

Large

Small

Necessity

Luxury

necessity

'  
 


  

1. Total revenue= Money a firm generates from selling its product

 .


   (  




 c
  c/

'



  

Percentage change in quantity > Percentage change in price

Increasing

Decreasing

Decreasing

Increasing

 
 c0

'



  

Percentage change in quantity < Percentage change in price

Increasing

Increasing

Decreasing

Decreasing


1  
 

 (c(  
   

  

2*  
    
3

c
 
 

'



4 


Income elasticity

Normal goods

Inferior goods

Cross-price elasticity
 Substitute goods

Complementary goods

c(  
   

*  
    ,

 
 






Higher price causes increased output by existing producers but limited by principle of
diminishing return, 
  , 
  


#


New producers enter the market producing more output, 

  , 
  


Perfectly inelastic supply: price elasticity of supply=0

percentage change in supply=0

Perfectly elastic supply: price elasticity of supply=infinity

percentage change in price=0

'  
     (  
    *1c5c

1. Conditions which an increase in demand can cause a relatively

small increase in price

1. small increase in demand

1. highly elastic demand

1. highly elastic supply

 .  
6 -
 

     


  


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Income, with normal good

Increase
 Income, with inferior good

Decrease

Price of a substitute good

Increase

Price of a complementary good

Decrease

Population

Increase

Consumer preference for good

Increase

Expected future price

Increase

     


  


 # 

   "



Income, with normal good

Decrease

Income, with inferior good

Increase

Price of a substitute good

Decrease

Price of a complementary good

Increase

Population

Decrease
 Consumer preference for good

Decrease

Expected future price

Decrease

     


  


 !

 

   "



Wage

Decrease

Price of materials or capitol

Decrease

Technology advance

Increase

Government subsidy

Increase

Expected future price

Decrease

Number of producers

Increase

     


  


 # 
$ 

   "



Wage

Increase

Price of materials or capitol

 Increase

Tax

Increase

Expected future price

Increase

Number of producers

Decrease

V%
c

  
 

  


 
 

 
 




Increase in demand

Increase

Increase

Decrease in demand

Decrease

Decrease

Increase in supply

Decrease

Increase

Decrease in supply

Increase

decrease

' c
 

 (c()  
   


  *  
    +, 
 

 elastic demand= Price elasticity of demand > 1

percentage change in quantity > percentage change in price.

Inelastic demand < 1

percentage change in quantity < percentage change in price

Unit elastic demand = Price elasticity of demand = 1

percentage change in quantity = percentage change in price

Perfectly inelastic demand= Price elasticity of demand = 0

percentage change in quantity = 0

Perfectly elastic demand= Price elasticity of demand = infinity

percentage change in price = 0




c
 


-



  
  
 

  
  
 

Availability of Substitutes

Many

Few

Passage of time

Long time

Short time

Fraction of consumer budget

Large

Small

Necessity

Luxury
 necessity

'  
 


  

1. Total revenue= Money a firm generates from selling its product

 .


   (  





c
  c/

'



  

Percentage change in quantity > Percentage change in price

Increasing

Decreasing

Decreasing

Increasing

 
 c0

'



  

Percentage change in quantity < Percentage change in price

Increasing

Increasing

Decreasing

Decreasing


1  
 

 (c(  
   

  

2*  
    
3

c
 
 

'



4 

 Income elasticity

Normal goods

Inferior goods

Cross-price elasticity

Substitute goods

Complementary goods

' c
 

 (c(  
   

*  
 
  ,

 






Higher price causes increased output by existing producers but limited by principle of
diminishing return, 
  , 
  


#


New producers enter the market producing more output, 

  , 
  


Perfectly inelastic supply: price elasticity of supply=0

percentage change in supply=0

Perfectly elastic supply: price elasticity of supply=infinity

percentage change in price=0