CHAPTER 1 ( Fundamental Concepts of Econ )

Oikos – household
Nomus– system/management
Oikonomia/Oikonomus – management of household
Micro – management of household
Macro – state management
Scarcity – basic central econ problem
Econ– science in making choices
I. Four Basic Economics Question
What to produce - commodities needed to be produce (capability of country)
How to produce- methods and techniques
Labor Intensive Production –human resources/manual labor
Capital Intensive Production–technology and capital goods (machineries and equipment)
How much to produce –number of commodities needed to be produce
Underproduction –failure to meet the needs and wants of society
Overproduction – excess goods and services going to waste
For whom to produce –people/sectors who demand commodities

II. Why Study Econ

To understand the society –analyze transactions made by society
To understand global affairs –internal operation and trade policies of countries
To be an informed voter –econ develops individual to be a wise voter
III. 3 E’s in Econ
Efficiency –proper allocation of econ resources ( relationship= physical [tech eff] or cost terms [econ eff] )
Equity –justice and fairness
Effectiveness –attainment of goals and objectives
IV. Imp. Econ Terms
Wealth –functional value (money)
Consumption –direct utilization of goods and services
Production –formation by firms of an output
Exchange –trading goods/services for money and its equivalent
Distribution –allocating scarce resources
V. Division of Econ
Micro –decision of individuals and firms (focus=buyer & seller, concerns=firm_max profit & consumers_max satisfaction)
Macro–behavior of an entire economy
Econ Aggregate/Topics of measuring macro
 Income and expenditures, savings and investment, gen. price level
Opportunity Cost –foregone value
VI. Scientific Methods Used in Econ
Empirical –data are properly organized for analysis
Econ policy/applied econ –econ principle/theory put into action
Theories/Principles Models
 Verbal statement, graphs, numerical tables and mathematical equations.
VII. Key Elements of Econ Act.
Human wants –driving and motivating force
Charac. –they are varied ; the aggregate,over time,they are insatiable
Origin –human beings, culture, biological and cultural needs, want satisfying act.
Econ resources–production of goods and services to satisfy human wants, factors of production/inputs of productions
Labor/human resources –labor power/capacity for human effort
Capital/non-human resources –include all non-human resources
Techniques of production –knows-hows and physical means of transforming resources to want-satisfying form
VIII. Graphs Used in Econ Analysis
Variable –measured by #, used to analyze what happens to other things
Dependent –those values ∆ when the value of another variable ∆ (effect)
Independent –∆ will cause the dependent variable to ∆ (cause)
The Slope of a Straight Line –ratio V∆ to the corresponding H∆
CHAPTER 2 ( Basic Analysis of Demand and Supply )
Demand –consumers’ desire for specific good/service
Quantity Demanded –# of units of a good/service that consumers buy
Demand Schedule –table showing qty. demanded
Demand Curve –graphical representation of demand schedule (sloping downward L-R, slope neg.)
Law of Demand –as the P inc. qty. demanded dec. and as the P dec. qty. demanded inc.
Demand Eq’n
Qd = a – bP ; ( Qd = qty. demanded; a = constant; b = slope; P = price )
I. ∆D VS ∆QD
∆D –shifting of the DC either L/R due to ∆ in the determinants of D (price unchanged)
∆QD –movement along a given DC due to ∆P of a good itself (∆ price)
II. Determinants of Demand
Tastes/Preferences –tastes favorable to a product
Population –inc. in the # of consumers will results to an inc. in demand
Consumer Income –rise in income normally shifts DC outward to the right
Normal goods – commodities whose demand varies directly with nominal income
Inferior goods –goods whose demand varies inversely with a ∆ in nominal income
Price of Related Goods
Substitute goods – can take place of the other goods
Complementary goods –goods that go in hand
Price Expectations –inc. toms/next week they buy more of these goods now
Supply –willingness and ability of producer/seller to sell goods and services
Quantity Supply –# of units of a good/service that producers/sellers sell
Supply Schedule –table showing the qty. supplied
Supply Curve –graphical representation of supply schedule
Law of Supply –as the P inc. qty. supply inc. and as the P dec. qty. supply dec
Supply Eq’n
Qs = c + dp ; ( Qs = qty. supplied; c = constant; d = slope; P = price )
I. ∆S VS ∆QS
∆S – shifting of the SC either L/R due to ∆ in the determinants of S (price unchanged)
∆QS –movement along a given SC due to ∆P (∆ price)
II. Determinants of Supply
Technology
Cost of production
Number of seller
Prices of other goods
Price expectations
Taxes and subsidies
Market Demand –sum/total of all individual consumers’ demand
Market Supply –sum/total of all individual producers/sellers’ supply
Market Equilibrium –value/amount of MD = value/amount of MS
Market Equilibrium Qty –qty of D = qty of supply
Market Equilibrium Price/Market-Determined Price –resulting price when MD is exactly the same as MS
Market Disequilibrium –MD and MS are not equal
Surplus –excess in supply; pressure on price is downward
Shortage –excess in demand; pressure on price is upward
Equilibrium – D=S; pressure on price is equilibrium
CHAPTER 3 ( The Concepts of Elasticity )
Elasticity –responsiveness
Elasticity of Demand (εd) –degree of responsiveness
I. Categories/Types of Reaction of Buyers to Price Changes of Goods and Services
Elastic Demand – εd >1
Inelastic Demand –0< εd<1
Unitary Elasticity – εd = 1
Perfectly Inelastic – εd = 0
Infinite Elasticity/Perfectly Elastic – εd =∞
II. Numerical Measurement of Demand Elasticity
%∆ in Qd
εd =
%∆ in P
III. Methods of Computing Elasticity
Arc Elasticity –computed bet. 2 separate points on DC
∆Q (P1 + P2 )⁄2
εd = ×
∆P (Q1 + Q 2 )⁄2
Point Elasticity –computed at a single point on DC for an infinitesimal ∆P
∆Qd P1
| εd | = ×
∆P Qd1
III. Determinants of Demand Elasticity
Number of Substitute Goods –elastic (sub. Goods); inelastic (w/out)
Price Increase in Proportion to Income –inelastic (P inc. little effect); elastic (P inc. more effect)
Luxuries versus Necessities –inelastic (luxuries); elastic (necessities)
Time –elastic (long period of time);
Price Elasticity Supply ( 𝛆𝐒 ) –measure of the responsiveness of the qty of supply
I. Categories/Types of Reaction of Sellers to Price Changes of Goods they are Producing/Selling
Elastic Supply – % ∆ in P results < % ∆Qs; 𝛆𝐒 > 𝟏
Inelastic Supply – % ∆ in P results > % ∆Qs; 𝛆𝐒 < 𝟏 > 𝟎
Unitary Supply – % ∆ in P results = % ∆Qs; 𝛆𝐒 = 𝟏
Infinitely Elastic Supply – w/out ∆ in P there is ∞∆Qs; 𝛆𝐒 = ∞
Perfectly Inelastic Supply –∆ in P no effect on Qs; 𝛆𝐒 = 𝟎
II. Determinants of Elasticity of Supply
Time
Elasticity and Total Revenue
P and Tr ∆ in opposite direction, D –elastic
P∆ leaves Tr unchanged, D –unitary elastic
P and Tr ∆ in the same direction, D –inelastic
III. Three Market Periods
Momentary -
Short-run
Long-run