Economics- Chapter 1-2
Law of Demand - Consumers buy more of a good and service when its price goes down and
less for price increase.
Elasticity of Demand - Consumer response to price change.
1=unitary (land)
<1=inelastic (food, life saving medicine)
>1= elastic (wants, luxury items)
Law of Supply - Suppliers offer more of a good at a higher price and less at a lower price.
Elasticity of Supply - Key factor is time (inelastic- can't easily change output level; elastic- can
easily change output level).
Demand and Supply Curve - Equilibrium, Right Shift, Left Shift
Equilibrium Point
Right Shift
Left Shift - Price Quantity demanded equals quantity supplied.
Increase.
Decrease.
Operating Cost - Cost of operating a facility such as a store or factory.
Cost of Production - Fixed Cost and Variable Cost
Fixed Cost - Cost does not change.
Variable Cost - Cost changes depending on how much is produced.
, Total Cost - Fixed cost plus variable cost.
Marginal Cost - Cost of producing ONE MORE unit of a good.
Marginal Revenue - Additional income from selling ONE MORE unit of a good.
Marginal Product of Labor - The change in output from hiring ONE MORE unit of labor.
Increasing Marginal Returns - Marginal Product of labor increases as number of workers
increase.
Diminishing Marginal Returns - Marginal product of labor decreases as number of workers
increase.
Surplus - Quantity is higher than the demand.
Shortage - Quantity is lower than the demand.
Price Floor - Minimum price set by the government; creates surpluses. Example: Minimum
wage.
Price Ceiling - Maximum price set by the government. Creates shortages. Example: Rent
control.
Market Failures - Resources not distributed efficiently; monopolies; public goods.
Prices - Act as signals; are incentives; are flexible; serves as a distribution system.
Supply Shock - Sudden shortage of a good.
Rationing - Government system of allocation of goods and services other than price system
(Used during WWII in the U.S.)
Law of Demand - Consumers buy more of a good and service when its price goes down and
less for price increase.
Elasticity of Demand - Consumer response to price change.
1=unitary (land)
<1=inelastic (food, life saving medicine)
>1= elastic (wants, luxury items)
Law of Supply - Suppliers offer more of a good at a higher price and less at a lower price.
Elasticity of Supply - Key factor is time (inelastic- can't easily change output level; elastic- can
easily change output level).
Demand and Supply Curve - Equilibrium, Right Shift, Left Shift
Equilibrium Point
Right Shift
Left Shift - Price Quantity demanded equals quantity supplied.
Increase.
Decrease.
Operating Cost - Cost of operating a facility such as a store or factory.
Cost of Production - Fixed Cost and Variable Cost
Fixed Cost - Cost does not change.
Variable Cost - Cost changes depending on how much is produced.
, Total Cost - Fixed cost plus variable cost.
Marginal Cost - Cost of producing ONE MORE unit of a good.
Marginal Revenue - Additional income from selling ONE MORE unit of a good.
Marginal Product of Labor - The change in output from hiring ONE MORE unit of labor.
Increasing Marginal Returns - Marginal Product of labor increases as number of workers
increase.
Diminishing Marginal Returns - Marginal product of labor decreases as number of workers
increase.
Surplus - Quantity is higher than the demand.
Shortage - Quantity is lower than the demand.
Price Floor - Minimum price set by the government; creates surpluses. Example: Minimum
wage.
Price Ceiling - Maximum price set by the government. Creates shortages. Example: Rent
control.
Market Failures - Resources not distributed efficiently; monopolies; public goods.
Prices - Act as signals; are incentives; are flexible; serves as a distribution system.
Supply Shock - Sudden shortage of a good.
Rationing - Government system of allocation of goods and services other than price system
(Used during WWII in the U.S.)
