Summary Principles of Economics 1, microeconomics
chapter 1:
demand:
● demand schedule: table of how much goods and services people will buy at different prices
● demand curve: graphical representation of how much customers will buy at certain prices
● law of demand: as the price of a good increases demand will also increase
● time series: same person observed over time
● cross sectional: different people observed at the same time
● demand for normal goods increases with income
supply:
● new technologies raise supply
● input: good used to produce another good
● if input price increases supply decreases
● market supply: sum of individual suppliers
equilibrium:
● when qd = qs or every buyer finds a seller and vice versa
relationship between supply and demand:
● if both supply and demand increase
○ ps decreases and qs increases
○ pd increases and qd increase
○ pe is unknown and qe increases
● if supply and demand decrease
○ ps increases and qs decreases
○ pd and qd decrease
○ pe unknown qe decreases
● if supply increases and demand decreases
○ ps decreases and qs increases
○ pd decreases and qd decreases
○ pe decreases and qe is unknown
● if supply decreases and demand increases
○ ps increases and qs decreases
○ pd increases and qd increases
○ pe increases and qe is unknown
chapter 4:
● wtp: maximum amount a consumer is wtp for a good or service
● if price falls consumer surplus increases
government control of the market place
● reallocate consumption which causes lower ts
● reallocate sales which lowers ts
● change q which lowers ts
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, ●
total surplus:
9
0
7
0 + = total
surplu
5 s
0 1 3
5 7
3
= actual
0
price
= total consumer
1 su
= troptlaulsproducer
chapter 0
6:
surplus
elasticity:
● how much one variable will change based on changes in the other variable, elastic if > 1, 0
is perfectly inelastic, unit elastic demand = 1
● (q2-q1)/(q1+q2)/2/(p2-p1)(p1+p2)/2
● e=change q/change p
● relationship between quantity demanded and price is negative
price elasticity of demand
● price elasticity of demand is abs value of the ratio of change along the curve
● total revenue: value of all goods sold = pq
● price effect: when p increases each unit is sold at a higher price
● quantity effect: when price increases less units are sold
● if pe > qr tr increases
● if demand is inelastic pe is more important and vice versa
● factors that affect the price elasticity of demand
○ whether the good is luxury of necessity
○ availability of substitutes
○ share of income spent on the good
○ time elapsed since price change
● cross-price eod
○ ratio of percent change of good a vs good b qa/pb
○ is cpd is positive then the goods are substitutes
○ if cpd is 0 then goods are unrelated
○ if cpd is negative they’re compliments
● income elasticity of demand
Downloaded by ikonya james ()
, ○ qd change/change income
Downloaded by ikonya james ()
chapter 1:
demand:
● demand schedule: table of how much goods and services people will buy at different prices
● demand curve: graphical representation of how much customers will buy at certain prices
● law of demand: as the price of a good increases demand will also increase
● time series: same person observed over time
● cross sectional: different people observed at the same time
● demand for normal goods increases with income
supply:
● new technologies raise supply
● input: good used to produce another good
● if input price increases supply decreases
● market supply: sum of individual suppliers
equilibrium:
● when qd = qs or every buyer finds a seller and vice versa
relationship between supply and demand:
● if both supply and demand increase
○ ps decreases and qs increases
○ pd increases and qd increase
○ pe is unknown and qe increases
● if supply and demand decrease
○ ps increases and qs decreases
○ pd and qd decrease
○ pe unknown qe decreases
● if supply increases and demand decreases
○ ps decreases and qs increases
○ pd decreases and qd decreases
○ pe decreases and qe is unknown
● if supply decreases and demand increases
○ ps increases and qs decreases
○ pd increases and qd increases
○ pe increases and qe is unknown
chapter 4:
● wtp: maximum amount a consumer is wtp for a good or service
● if price falls consumer surplus increases
government control of the market place
● reallocate consumption which causes lower ts
● reallocate sales which lowers ts
● change q which lowers ts
Downloaded by ikonya james ()
, ●
total surplus:
9
0
7
0 + = total
surplu
5 s
0 1 3
5 7
3
= actual
0
price
= total consumer
1 su
= troptlaulsproducer
chapter 0
6:
surplus
elasticity:
● how much one variable will change based on changes in the other variable, elastic if > 1, 0
is perfectly inelastic, unit elastic demand = 1
● (q2-q1)/(q1+q2)/2/(p2-p1)(p1+p2)/2
● e=change q/change p
● relationship between quantity demanded and price is negative
price elasticity of demand
● price elasticity of demand is abs value of the ratio of change along the curve
● total revenue: value of all goods sold = pq
● price effect: when p increases each unit is sold at a higher price
● quantity effect: when price increases less units are sold
● if pe > qr tr increases
● if demand is inelastic pe is more important and vice versa
● factors that affect the price elasticity of demand
○ whether the good is luxury of necessity
○ availability of substitutes
○ share of income spent on the good
○ time elapsed since price change
● cross-price eod
○ ratio of percent change of good a vs good b qa/pb
○ is cpd is positive then the goods are substitutes
○ if cpd is 0 then goods are unrelated
○ if cpd is negative they’re compliments
● income elasticity of demand
Downloaded by ikonya james ()
, ○ qd change/change income
Downloaded by ikonya james ()
