Circular flow model: represents transactions in a economy. All goods and services flow in a clockwise direction.
  
Product Market: this is the place where goods and services are produced by businesses and are bought and sold to households.     

• Firms sell, households buy 

Resource or factor market: the place where households sell resources and businesses by resources. 

• firms buy, households sell  

Households: person or a group of people that share their income        

• sell resources, buy products  

Firms: is an organization that produces goods and services for sale                                              

•  buy resources, sell products 

 

•Equilibrium: Supply & demand intersect. It means they are using their resources efficiency. 

•Shortage: QD>QS

•Surplus: QS>QD

•Price ceiling: (below equilibrium) Gov imposed limit on how high you can be charge for a product of servant. 

•Price floor: Government imposed minimum,On how low a price can be charge for a product or servant. 

ex. Minim wage 

•Fix cost: A cost that does not change no matter how much is produces. 

Ex.rent, car insurance 

•Variable cost: A cost that does changes. 

Ex. Gas, water bill

•Marginal cost: New total cost-old TC

•Total Cost: TFC+TVC=TC 

•Equations

-AVERAGE FIXED COST= TFC/quantity

-Average variable cost= total variable cost/Q

-Average total cost= AFC+AVC or ATC/Q

Elasticity- It tells how drastically buyers that cut back or increase the demands for a good when the price rises or falls.

Elastic demands: when demands will change greatly given a small change in price.

Ex. "Wants:" movie tickets, steaks, fur coats

Inelastic demands: your demands for a products will not change regardless of price.

Ex. "Needs:" milk, gasoline, medicine 

Unit elastic: E=1 

Problem reviews 

1. new quantity-old quantity divided 

------------------------------------

old quantity. 

2.new price-old price divided 

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old price 

3.PED %change in quality divided 

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% change in price 

5 factors of production

1. Land :natural resources 

2. Labor: work force

3. capital: 

•  Physical capitals : human made objects used to create other goods & services.  
• Human capital: knowledge & skills. Gains from education & experience

4. entrepreneurship : Risk taker

Trade off : alternative that we give up when we choose one course of action or another.

Opportunity cost: most desirable alternative given up by making a decision. 

 Production possibilities graph:
Shows alternative ways to use resources.

 Key:
- A: efficient producing more capital
-B: Efficient attainable
-C:Efficient but producing more consumer
-D: Underutilization, attainable but inefficient

•  recession
• war/famine
• unemployment
• population loss

-E: unattainable

• Economic growth 
• Technology
• Discover new resources. 

 

 

 

 

Macroeconomic vs Microeconomics

Macroeconomic: study of entire economy, which covers the ups and down of the economy.

Microeconomics: study of the part of economy,small impacting organizations in making decisions on the allocation of limited resource.

 Positive Economics Vs Normative Economic

Positive Economics (facts):  claims that attempts to describe the world as is. It is very descriptive.
Ex.min wage laws causes unemployment 

Normative Economics (opinion): claims that attempts to prescribe how the world should be. It is very prescripts in nature. & is opinion based.
Ex. Gov should raise the minim Wage. 

Need VS wants  

Needs: are basic requirements for survivals. 

 Wants: are desires of citizens & are broader than your needs. 

Scarcity vs Shortage 

Scarcity: is the most fundamental economic problem facing all society. It is satisfying unlimited wants with limited resources. 
 

Shortage: is a situation that we have that quantity demanded is greater than quality supplied. 

Goods vs Services

consumer goods: goods that are intended for final use by the consumer.

Capital goods:item uses in the creation of other goods.

Services: Work that is perform for someone else.