Economics

3 Economic Questions- What to produce?-How to produce?-For whom to produce?

Economic SystemsTraditional System Command System Market System Mixed Market

Circular FlowHousehold- the consumer itselfFirms- the producersOutput Market- The firms produce what the household demands.Input Market- The household produce what the firm demandsFactors that affect production: Land Labor Capital Entrepreneur

SupplyLaw:Quantity Supplied- amount of product that a firm is willing to sell at a certain price within a given period.Profit- Total revenue minus total costTotal revenue- price of a good x quantity soldTotal Cost- amount of money spent by a firm to be able to produce a good. 

DEMANDLaw:"The price increases, quantity demand decreases. Price decreases, quantity demand increases."Price- amount of money that an individual is willing to pay.Quantity demanded- amount of product that an individual is willing to purchase.Ceteris Paribus- "all things are held constant.Price of a good- factor determines demand.Demand Schedule- shows the quantity of a product that an individual is willing to buy at a given price.Demand Curve- Shows relationship between price and quantity demand.Factors:Incomenormal goodinferior goodPrice of related goodssubstitute-complementary-Expectation of future prices and incomeTaste and preferenceMarket Demand- sum of quantities of a certain product demanded by individuals

SupplyLaw:"Price increases, quantity supplied increases. Price decreases, quantity supplied decreases.Quantity Supplied- amount of product that a firm is willing to sell at a certain price within a given period.Profit- Total revenue minus total costTotal revenue- price of a good x quantity soldTotal Cost- amount of money spent by a firm to be able to produce a good.Supply Curve- shows relationship between price and quantity supplied.Factors: Increase in the cost of production puts a constraint on the quantity that firm can produce. Change in technology Price of related production weather Peace and Order. Market Supply- sum of quantity of goods supplied by firm.

Elasticity- measures the responsiveness of consumers/producers to the change of price of the product.

Price elasticity of demand- consumer's response.Elastic demand/supply consumers are responsive to the price change. absolute value is more than 1 luxuries Inelastic demand/supply not too responsive with the price change slight decrease in the quantity demanded absolute value is less than 1 necessities Unitary Elastic Demand/supply price=percentage change absolute value is 1 Perfect Elastic Demand/supply demand becomes 0 price remains unchanged a lot of compettition Perfect Inelastic Demand/supply change of price don't result in change in quantity demand products with no substitute.

Equilibrium quantity supplied=quantity demanded at a given price. two curves intersect at one point

Excess Demand quantity demanded > quantity supplied. quantity demanded - quantity supplied shortage

Excess Supply quantity supplied exceeds quantity demanded quantity supplied- quantity demanded surplus

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DEMAND

Supply

Elasticity

Equilibrium