Econ 101 - Part 1 - Corey Van der Waal - University of Waterloo | latest with complete solution

Econ 101 - Part 1 - Corey Van der Waal - University of Waterloo | latest with complete solution PPF: Production Possibilities Frontier - Alternative combinations of goods that can be produced by the economy with a given technology and fixed resources. - A point inside the PPF: producing with unemployed resources. - On the frontier of PPF: productively efficient. - Can not produce outside the PPF. - Movement along the frontier shows tradeoffs in production Opportunity Cost - What you have to give up of one this in order to get another. Value of the next best good or service forgone. Slope=OC - Law of increasing cost: OC of producing good X increases when more of good X is produced - If the opportunity cost of one good increases the other must decline. - OC X= Loss of Y/ Gain of X -> per unit OC of X Chapter 3 - Demand and Supply competitive market - market that has many buyers and many sellers so no single buyer or seller can influence the price. Money price - The amount of money needed to buy it. Quantity demanded - The amount of a good that people are willing and able to purchase at a given price, holding all other factors constant. - Movement along the demand curve, not a shift in the demand curve Demand - The term demand refers to the entire relationship between the price of the good and quantity demanded of the good. 1. Want it, 2. Can afford it, and 3. Have made a definite plan to buy it. Law of Demand: - When price increases the quantity demanded decreases (negative slope) results from - Substitution effect - Income effect Substitution Effect - When the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded of the good or service decreases. Income Effect - When the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases. Demand Curve and Demand Schedule - A demand curve shows the relationship between the quantity demanded of a good and its price when all other influences on consumers' planned purchases remain the same. Willingness and Ability to Pay Curve - The smaller the quantity available, the higher is the price that someone is willing to pay for another unit. Shifting Demand Curve: - An increase or decrease in demand refers to shifting the demand curve. Non price determinants of Demand: - Consumers Preferences - Consumers Income: Normal good; demand increases as income increases. Inferior good: demand decreases as income increases. Price Related Determinants: - Prices of closely related goods: - Number of consumers in the market: more consumers=more demand - Future Price expectations: expect a higher price tomorrow, will buy more now - Future Income and Credit Prices of Related Goods - Substitutes; price increase of one results in demand increase of another. Compliments: Price increase in a good result in a demand decrease in its compliment. Expected Future Prices - If the expected future price of a good rises, current demand for the good increases and the demand curve shifts rightward. Expected Future Income and Credit - When expected future income increases or when credit is easy to obtain, the demand might increase now. Population - The larger the population, the greater is the demand for all goods. Preference - People with the same income have different demands if they have different preferences. Income - When income increases, consumers buy more of most goods and the demand curve shifts rightward. A normal good is one for which demand increases as income increases. An inferior good is a good for which demand decreases as income increases. Demand vs. Quantity Demanded - Change in demand: shift of demand curve Change in quantity demanded: movement along curve Supply - 1. Has the resources and the technology to produce it, 2. Can profit from producing it, and 3. Has made a definite plan to produce and sell it. Quantity Supplied - The quantity supplied of a good or service is the amount that producers plan to sell during a given time period at a particular price. Law of Supply: - When price increases the quantity supplied increases Supply Curve and Supply Schedule - The supply curve shows the relationship between the quantity supplied of a good and its price when all other influences on producers' planned sales remain the same. Minimum Supply Price - The lowest price at which someone is willing to sell an additional unit rises. This lowest price (Y-int)is marginal cost. Supply vs. Quantity Supplied - Increase or decrease in supply refer to shifts of supply curve. Determinants of Supply - - The prices of factors of production - The prices of related goods produced - Expected future prices - The number of suppliers - Technology - State of nature Prices of Factors of Production - If the price of a factor of production used to produce a good rises, the minimum price that a supplier is willing to accept for producing each quantity of that good rises. Prices of Related Goods Produced - A substitute in production for a good is another good that can be produced using the same resources. The supply of a good increases if the price of a substitute in production falls. Goods are complements in production if they must be produced together. The supply of a good increases if the price of a complement in production rises. Expected Future Prices - If the expected future price of a good rises, the supply of the good today decreases and the supply curve shifts leftward. The Number of Suppliers - The larger the number of suppliers of a good, the greater is the supply of the good. An increase in the number of suppliers shifts the supply curve rightward.