Supply and Demand part 3: Price celings and Price floors (01/20/17)

Equilibrium

Is the point at which the supply curve and the demand curve intersect.

Excess demand - it occurs when quantity demanded is greater than quantity supplied. QD>QS.

Shortage -where consumers can not get enough of the quantities they desire.

Price ceiling

• it creates a shortage.
• It occurs when the government puts a legal limit on how high the price of a product can be.
• It is below the equilibrium .

Ex: the government putting price ceiling on the flu shots, rent control

RENT CONTROL:

An illustration of price ceiling and price floor

Excess supply - it occurs when quantity supplied is greater than quantity demanded. It will create a surplus (invention that they can not get rid of). QS>QD.

Price floor- it is the lowest price a commodity can be sold at. Are used by the government to prevent prices from becoming too low.

Ex: Minimum Range.

Supply & Demand part 2: Cost of production table (01/17/17)

Marginal Revenue

The additional income from the sale of an additional product.

Fixed Cost is a cost that does not change no matter how much of a good is produced.

Ex: mortgage, rent, salary.

Variable Cost is a cost that rises or falls depending upon how much is produced.

Ex: Electricity.

TFC+TVC=TC

AFC +AVC = ATC

TFC / Q = AFC

TVC / Q = AVC

TC / Q = ATC

TFC * AFC = Q

TVC * AVC = Q

Q - Quantity

TFC - Total Fixed Cost

TVC - Total Variable Cost

TC -Total Cost

MC  - Marginal Cost

AFC - Average Fixed Cost

AVC - Average Variable Cost

ATC - Average Total Cost

Resources:

http://economics.fundamentalfinance.com/micro_atc_mc.php

Supply & Demand part 1: Price of elasticity of Demand (01/11/17)

Elasticity of Demand
It is a measure of how consumers react to a change in price.

ELASTIC DEMAND

• Demand that is very sensitive to a Δ in price
• Product is not a necessity
• There are available substitutes

• Examples:

1. Soda
2. Fur coat
3. Pizza

         E >1

INELASTIC DEMAND

• Demand that is very sensitive to a Δ in price
• Product is a necessity
• There are few to none available substitutes

• Examples:

1. Water
2. Gas
3. Salt
4. Insulin

1. Light Bulbs

             E < 1

UNITARY ELASTIC

E = 1

3 step formula of calculating Elasticity of Demand

Step 1: Quantity:

   New quantity - Old quantity / Old quantity

Step 2: Price:

   New price - Old price / Old price

Step 3: PED ( Price of elasticity of Demand)

    % Δ in Quantity / % Δ in Price

Total Revenue (TR) -  P(price) *  Q (quantity), (money)

Practice at:
http://www.economicsonline.co.uk/Questions/PED.html

Basic Concepts of Economics (01/03/17)

They are 5 concepts that you must know:

1. Macroeconomics vs. Microeconomics

Macroeconomics- is the study of the economy as a whole ( Big picture).
Ex: International trade, inflation.

Microeconomics- is the study of individual or specific units of the economy.
Ex: Supply, demand, market structure, business organizations, etc.

2. Positive economics vs. Normative economics

Positive economics- are claims that attempt to describe the world as is. It is very descriptive, collects and presents facts. Fact based.

Normative economics- are claims that attempt to prescribe how the world should be. Opinion based.

3. Needs vs. Wants

Needs- basic requirements for survival.

Wants- desires.

4. Scarcity vs. Shortage

Scarcity- is the fundamental economic problem that all societies face. Basicically it is how to satisfyy unlimited wants with limited resources.
Rx: Oil.

Shortage- this is a situation where quantity demanded is greater than quantity supplied( QD>QS).

5. Goods vs. Services

Goods- tangible commodities.

-Consumer goods: goods that are intended for final use by the consumer.
Ex: A car, a cookies, juice, etc.

-Capital goods: items used in the creation of other goods.
Ex: the car engine & tires,the cookies flour & sugar.

Services- work that is performed for someone.

Factors of Production

1. Land- natural resources

2.  Labor- work exerted

3. Capital involves two types:

a) Human capital: where people aqcuire skill and knowledge through experience and education.

b) Physical capital : can be money tools, buildings & machines.

4. Entrepreneurship- it involves risk taking. The entrepreneurs combine the factors of production in order to become successful.

Trade-offs

Is an alternative that we we sacrifice when we make a decision.

Ex: A farmer who grows tomato in his land and can not grow corn.

Oppurtunity cost

Is the next best alternative. What do you give of in order to get something. Before the  trade- offs.

Ex: First a red bull > coffee> water

Guns or Butter

Refer to trade-offs that the gov't face, when choosing whether to produce more or less military goods or consumer goods.

Thinking at the Margins

Deciding whether to add or subtract one additional unit of some resource.

Resources:

http://scholar.harvard.edu/sendhil/scarcity