Chapter 1
● Trade offs
○ For consumers
■ Purchase some goods over others
■ Current consumption vs future consumtions
○ For workers
■ Choice in employment
■ Labor vs leisure
○ For firms
■ What to produce
■ Resources to use in production
● Trade offs are based on the prices faced by consumers, workers, or firms
● Positive vs Normative analysis
○ Positive questions deal with explanation and prediction
■ Cause and effect
○ Normative questions deal with what ought to be
■ Opinion
● Market
○ Collection of buyers and sellers that determine the price of a product or set of
products
● Arbitrage
○ Practice of buying at a low price at one location and selling at a higher price in
another
● Perfectly competitive market
○ Market with many buyers and sellers
○ No single buyer or seller has a significant impact on price
○ Opposite of monopolistic competition
● Extent of a market
○ Boundaries of a market, both geographical and and in terms of the range of
products produced and sold within it
Chapter 2
● The supply curve
○ Relationship between the quantity of a good that producers are willing to sell and
the price of a good
○ Q(x) = Qx(P)
○ “Quantity as a function of price”
● Shift in supply curve
○ Non-price determinant
● Movement along the supply curve
○ Price determinant
● The demand curve
, ○ Relationship between the quantity of a good that consumers are willing to buy
and the price of a good
○ Q(x) = Qx(P)
● Shift in demand curve
○ Non-price determinant
● Movement along the demand curve
○ Price determinant
● Elasticity
○ % change in one variable resulting from a 1% increase in another
● Price elasticity of demand
○ %change in quantity demanded of a good resulting from a 1% increase in its
price
○ E(p) = (%ΔQ)/(%ΔP)
● Infinitely elastic demand
○ Horizontal demand curve
● Completely inelastic demand
○ Vertical demand curve
● Income elasticity of demand
○ E(I) = (ΔQ/Q)/(ΔI/I) = (I ΔQ)/( Q ΔI)
● E(Q,P) = (ΔQ/Q)/(ΔP/P) = (P ΔQ)/(Q ΔP)
● Cross-price elasticity of demand
○ % change in the quantity of one good resulting from a 1% increase in the price of
another
● Price elasticity of supply
○ % change in quantity supplied resulting from a 1% increase in price
● Point vs Arc elasticities
○ Point elasticity of demand
■ Price elasticity at a particular point of the demand curve
○ Arc elasticity of demand
■ Price elasticity calculated over a range of prices
■ E(p) = (ΔQ/ΔP)(P/Q)
6/1/22
Chapter 3
6/7/22
Chapter 4
● Changes in price of a good with all other factors constant, cause consumers to switch to
a different market basket
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