Production Costs

-fixed costs-a cost that does not change no matter how much is produced
EX) people's salary, mortgage, car payments

-variable cost-cost that fluctuates or changes depending upon how much is produced
EX) electricity bill, water bill

-marginal cost-cost of producing 1 more additional unit of a good

**Formulas
TC=TFC+TVC
AFC=TFC/Q (QxATC=TC)
AVC=TVC/Q
ATC=TC/Q or ATC=AFC+AVC
MC=new TC-old TC

Price Elasticity of Demand

-elasticity of demand-a measure of how consumers react to a change of price

-elastic demand-demand that is very sensitive to a change in price (E>1) product is NOT a
necessity and has several substitutes
EX) soda, candy, fur coat, steak

-inelastic demand-demand that is not very sensitive to a change in price (E<1) product is
a necessity and has few/no substitutes
EX) salt, milk, insulin, gas

-unitary elastic (E=1)

How to Calculate Price Elasticity:
1) (new quantity-old quantity)/old quantity
2) (new price-old price)/old price
3) Q/P
**round answers to 2 decimal places
-total revenue-total amount of money a firm receives from selling goods and services
(PxQ=TR)

Demand & Supply Notes:

Business Cycle

Employment & Efficiency

-production possibilities graph (PPG)-shows alternative ways to use resources

-PPC-production possibilities curve

-PPF-production possibilites frontier

-opportunity cost-next best alternative

-productive efficiency-products being produced in least costly way
-allocative efficiency-products being produced are ones society most desires

-Law of Increasing Opportunity Cost (aka Law of Diminishing Return)-states that as production of a product increases, the cost to produce an additional unit of that product increases as well

Learn more about these graphs here:

Unit I: Basics of Economics

• Macro- vs. Micro- Economics

macroeconomics-study of major components of economy (e.g. inflation, wage laws, international trade) -THE ENTIRE ECONOMY-
microeconomics-study of how households and firms make decisions and how they interact in markets (e.g. supply and demand, market structures)

• (+) vs. normative economics

positive economics-attempts to describe the world as it is (e.g. minimum wage -$7.25-, causes unemployment) -can prove it is true, VERY DESCRIPTIVE

normative economics-how world should be (e.g. govt should raise minimum wage) -VERY PRESCRIPTIVE

• wants vs. needs

want-a desire

need-requirement

• scarcity vs. shortage

scarcity-most fundamental problem facing all societies, satisfying unlimited wants w/ limited resources (e.g. gas)

shortage-situation in which quantity demanded is quantity supplied

• goods vs. services

goods-tangible (touchable) commodity (useful thing)

2 types-

   1. capital goods-items used in creation of other goods (e.g. factory machinery, trucks)

   2. consumer goods-intended for final use by consumer (e.g. burger)

service-work performed for someone else

• 4 Factors of Production

1. land-natural resources

2. labor-workforce (how much is exerted)

3. capital

-human capital-knowledge and skills worker gains through education and expertise (skill)

-physical capital-human made objects used to create other goods and services      (e.g. tools, machinery, equipment, buildings)

4. entrepreneurship-involves risk-taking, being innovative and inventive