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Scarcity of resources
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Limited availability of resources
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Economics
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The study of how individuals and societies allocate scare resources among many competing uses
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Microeconomics
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The study of economics at the small-scale level, examining individuals and specific markets
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Macroeconomics
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The study of economics at the large-scale level, examining total output, the price level, and other aggregate measures in the economy
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Opportunity cost
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The value of the best alternative that must be given up to pursue that action
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Rational decision makers
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People that systematically and purposefully do the best they can to achieve their objectives
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Demand
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A correspondence that shows, at each price of a good what is the quantity demanded, holding everything else constant
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Supply
answer
A correspondence that shows, at each price of a good what is the quantity supplied, holding everything else constant
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Law of demand
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Holding everything else constant, if you observe the price of a good increase, the quantity demanded should decrease
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Law of supply
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Holding everything else constant, if you observe the price of a good increase, the quantity supplied should increase
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Inferior good
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a good for which there is an inverse relationship between the demand for the good and income; increase in income decreases demands
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Normal good
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a good for which there is a direct relationship between the demand for the good and income; increase in income increases demand
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Price ceiling
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if above equilibrium price: nonbinding (shortages)
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Price floor
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below equilibrium price: nonbinding (surpluses)
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Equilibrium price
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increase in demand will cause equilibrium price to rise
increase in supply will cause equilibrium price to fall
increase in supply will cause equilibrium price to fall
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Subsidy
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P+S= equilibrium quantity; find price on graph after that
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A rise in demand
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rightward shift causes increase in equilibrium price and quantity
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A fall in demand
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leftward shift causes decrease in equilibrium price and quantity
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An increase in supply
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rightward shift causes decrease in equilibrium price and a rise in equilibrium quantity
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A decrease in supply
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leftward shift causes an increase in equilibrium price and a decrease in equilibrium quantity
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