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Price Ceiling: the highest the government allows you to set the price for a product Sunday, January 24, 2016
Price Ceiling vs Price Floor
Price Ceiling: the highest the government allows you to set the price for a product 
Production
- Total Revenue- the total amount of money a firm receives from selling goods and services. Price X Quantity= Total Revenue
- Fixed Cost- a cost that does not change no matter how much is produced. (Rent)
- Variable Cost- a cost that rises or falls depending how much is produced
- Marginal Cost- the cost of producing one more unit of a good. New Total Cost - Old Total Cost= Marginal Cost
Formulas
TFC + TVC = TC
AFC+ AVC = TC
TFC/Q = AFC
TVC/Q = AVC
TC/Q = ATC
TFC =AFC X Q
TVC = AVC X Q
Demand
Elasticity of Demand- a measure of how consumers react to a change in price
- Elastic Demand- demand that is very sensitive to a change in price. E>1, the product is not a need and have substitutes
- Inelastic Demand- demand that is not very sensitive to a change in price. E<1, product is a need few to no substitutes, people will buy no matter the price
- Unitary Elastic- E=1
Examples of Inelastic: Insulin, salt, glass, milk, etc.
Price Elasticity of Demand
Step 1: Quantity: (New quantity - Old quantity)/Old quantity
Step 2: Price: (New price - Old price)/ Old price
Step 3: PED: (% of change in quantity demanded/% of change in price)
Three Movements of the PPC
- Inside the PPC: this occurs when resources are unemployed or underemployed
- Along the PPC
- Shifts of the PPC
What Causes the PPC to shift?
- Technological Changes (Shift Outside/Right of the Curve)
- Change in Resources (More Resources = Shift Outside/Right) (Less Labor = Shift Inside/Left)
- Economic Growth (Shift Outside/Right of the Curve)
- Natural Disasters/War/Famine (Shift Inside/Left of the Curve)
- Change in Labor Force (Less Labor = Shift Inside/Left) (More Labor = Shift Outside/Right) More Education & Training (Shift Outside/Right of the Curve)
Trade-offs- Alternatives that we give up whenever we choose one course of action over another
Opportunity Cost- The next best alternative
Production Possibility Curve (PPC), Frontier (PPF), Graph (PPG)- To show alternative ways to use an economy’s resources
4 Assumptions of a PPG
- Ø Two Goods
- Ø Fixed Resources (Land, Labor, Capital, Entrepreneurship)
- Ø Fixed Technology
- Ø Full Employment of Resources
Efficiency- Using resources in such a way as to maximize the production of goods and services
Allocative Efficiency- The products being produced are the ones that are most desired by the society
Productive Efficiency- Products are being produced in the least costly way; Any point on the PPC
Underutilization- Using fewer resources than an economy is capable of using
Introduction to Macroeconomics vs Microeconomics
Macro=big Micro=small
Macroeconomics: study of the economy as a whole- international trade
- supply and demand
- minimum wage
- market structures
- business organizations
Positive Economics VS Normative Economics
Positive Economics: attempt to describe the world as is (very descriptive)"what is"
-collects and presents facts
Normative Economics: attempts to describe how the world should be
"ought to be"
"should be"
(opinions)
Needs VS Wants
Need: basic requirement for survival
- food
- shelter
- H2O
- clothing
Wants: desires of citizens
- desires
Goods VS Services
Goods: tangible commodities citizens used in the creation of other goods
- trucks
- planes
*consumer goods: goods that are intended for finish use by a consumer
Services: work that is performed for someone
- beauty shop
Scarcity VS Shortage
Scarcity: the most fundamental economic problem that a society faced (how to satisfy unlimited wants with limited resources)
- oil
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