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Full summary of the Principles of Economics and Business 1 course
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Summary of the Principles of Economics and Business 1 course taught in the 1st year Business Administration programme.
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Principles of Economics andBusiness1
Assignment notes can be found at the bottom of this document
Economics = Study of choices + Money
and Beer:)
Incentives: Rewards and penalties that motivate behavior
Trade offs: they are everywhere, cuz not enough recourses -
scarcity
Opportunity Cost
Big Ideas: Ch1
1. Incentives matter
2. Good institution align self-interest with social interest
3. Trade-offs are everywhere
4. Thinking on the margin
5. Power of trade
6. Importance of wealth and economic growth
7. Institution matter
8. Economic booms and busts cannot be avoided but can be moderated
9. Price rise when government prints too much money
Trade Ch2
Trade makes people better off when differences differ - WHY?
Increases productivity and Specialization
Principles of Economics and Business1 1
, 💡 Absolute advantage: ability to produce the same good using fewer inputs
than another producer
💡 Comparative Advantage: Producing goods with lower opportunity cost
'Trade unites humanity'
✈ Adam Smith Assignment
Supply & Demand
Quantity demanded: is the amount of good that buyers are willing to purchase at
a given price
Demand curve: - downward sloping (Holding All else equal)
💡 LAW of DEMAND: In almost all cases, the quantity demanded rises when
the prices fall (HAEQ)
Willingness to pay
highest price the buyer is willing to pay for one extra unit of goods
the more he has the less he's willing to pay - diminishing marginal benefit
Consumer surplus: The consumer’s gain from exchange, or the difference
between the maximum price a consumer is willing to pay for a certain quantity
and the market price.
Demand Shifters
Tastes/ Preferences
caused by fads, fashion, advertisement, Marketing
Income
Principles of Economics and Business1 2
, for normal good - demand increases (right shift)
for inferior good- demand decreases (left shift)
Population
Availability
Substitutes
Complements - things that go well together
Expectations
changing buyers belief about the future
Quantity supplied: the amount of good the seller is willing to sell at a given price
Supply curve - upward sloping (positive)ú
💡 LAW of SUPPLY: In almost all cases the quantity supplied rises the price
rises
supply reflects marginal cost of production
Producer Surplus: The producer’s gain from exchange, or the difference
between the market price and the minimum price at which a producer would be
willing to sell a particular quantity.
Supply shifters
Prices of Inputs used to produce
increased input price - left shift
decreased input price - right shift
Taxes, subsidies
tax on output has the same effect as an increase in costs
subsidy is the reserve of taxes
Expectations
if suppliers expect prices to increase, will store goods and sell less today -
future increase means decreased supply today
Principles of Economics and Business1 3
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