This is a summary for Economics 1. It covers the following topics: demand and supply, markets and the competitive environment, short-run cost, perfect competition, monopoly, demand and supply on the labor market, unemployment and full employment, the money market, measuring gdp, aggregate supply an...
,DEMAND AND SUPPLY....................................................................................2
MARKETS AND THE COMPETITIVE ENVIRONMENT.............................................4
SHORT-RUN COST...........................................................................................5
PERFECT COMPETITION...................................................................................5
MONOPOLY.................................................................................................... 6
DEMAND AND SUPPLY ON THE LABOR MARKET................................................7
UNEMPLOYMENT AND FULL EMPLOYMENT.......................................................8
THE MONEY MARKET......................................................................................9
MEASURING GDP..........................................................................................10
AGGREGATE SUPPLY AND AGGREGATE DEMAND.............................................11
THE EXCHANGE RATE AND THE BALANCE OF PAYMENTS.................................13
1
, DEMAND AND SUPPLY
Markets and Prices:
- Competitive markets: a market that has many buyers and many sellers
- Money price
- Relative Price: price of a good relative to another good; a ratio
- Opportunity cost: value of what you have to give up in order to choose something
else
- Price Index
Demand:
- If you demand something: you want it, can afford it, plan to buy it
- Quantity demanded: amount that consumers plan to buy during a given time
period at a particular price
- The law of demand: other things remaining the same, the higher price of a good,
the smaller is the quantity demanded; and the lower the price of a good, the
greater is the quantity demanded
- Substitution Effect: although each good is unique, it has substitutes – other
goods that can be used in its place; as the opportunity cost of a good rises, the
incentive to economize on its use and switch to a substitute becomes stronger
- Income Effect: when a price rises it rises relative to income; faced with a higher
price and an unchanged income, people cannot afford to buy all the things they
previously bought; normally, the good whose price has increased will be one of the
goods that people buy less of
- Demand Curve and Demand Schedule
- Demand: entire relationship between the price of a good and the quantity
demanded of that good; illustrated by the demand curve and demand
schedule
- Quantity demand refers to point on a demand curve – the quantity
demanded at a particular price
- Demand curve: relationship between the quantity demanded of a good
and its price when all other influences on consumers’ planned purchases
remain the same
- Demand schedule: lists the quantities demanded at each price when all
the other influences on consumers’ planned purchases remain the same
- Willingness and ability to pay: another way to look at the demand
curve; measure of marginal benefit (additional satisfaction consumer enjoy
from an additional unit of a good or service)
- Changes in Demand:
- Prices of related goods:
- Substitutes: goods that can be used in place of another good
- Complement: a good that is used in conjunction with another good
- Expected future prices: retime of purchases because of an expected price
fall or rise
- Income:
- Normal good: demand increases as income increases
2
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