1. Definitions Sections 1 and Section 2

2. Section 1

3. Positive Economics Examines matters of economics that can be proven to be right or wrong by looking at facts. Normative economics Examines matters of economics that are based upon opinion and so are hard to be proven to be right or wrong.

4. Microeconomics Is the study of the individual markets and decisions by individual households and firms Macroeconomics is the study of the economy as a whole.

5. Scarcity Is a term used for a limited availability of recourses Free market economy When the productions are privately held by individuals and firms

6. Opportunity cost Is the sacrifice made In the next best alternative. Type of good Free good Involve no opportunity cost Capital Good Use consumption goods in the future Consumption Good bought for final consumption

7. Factors of Production -Land-natural resources -Labor-human resources -Capital- man maid aids to production-Entrepreneurship- this is the ability to combine

8. Production possibility Curve (PPC) Shows the maximum combination of goods and services which can be produced given the existing levels of resources. 0

9. Economic development Concept involving improvement in standards of living, reduction in poverty, improved health, and improved education Sustainable development Is the economic development that meets its needs of the present without compromising the ability of the future generation to meet their needs. Economic Growth B A Shift in Production

10. Actualoutput The production of goods and services in the economy achieved in a certain period of time Potential output The possible production that would be achieved if the available factors were employed. Actual Growth When unemployed factors of production are brought into use Potentialgrown When the quantity or quality of factors of production within an economy increases Economic Growth growth of real output in an economy

11. Section 2

12. Market Where consumers and producers come together to establish a price where each are happy with for a good or service.

13. Demand Is the willingness and ability to purchase a quantity of a good or service at a certain price over a given time of period Law of demand States as the price of good or service rises, the actual quantity demanded decrease. Demand curve Is a representation of the law of demand. D2 D 0

14. Supply Is the willingness and ability of a producer to produce a quantity of a good or service at a certain price over a certain period of time Law of supply states that as a price of a good rises, the quantity supplied will increase as well. Supply Curve is the curve of representation between the price and quantity supplied P2 Shift in Supply P1 S2 S1 Q1 Q2

15. Equilibrium price Is the market clearing price; demand is equal to supply S EQUAL D

16. Maximum price Aka ‘ceiling price’ is the set price by the government, in which sellers are not allowed to rise the price above. Price Ceiling on Gasoline Supply Price P1 $5.00 E1 Illegal P3 $1.50 Legal Shortage Demand Quantity Q1 0

17. Minimum price Aka ‘floor price’ is set by the government, in which the price is not allowed to be bellow a certain price. Buffer stock scheme Sets a maximum and minimum price in the market to stabilize prices. Equilibrium Point S Illegal Minimum price Legal D

18. ELASTICIES Price elasticity of demand (PED) Is the measure of the responsiveness of the quantity demanded of a good or service to a change in its price

19. Price Elastic demand Means that the change in the price of the good or service will cause a larger change in the quantity demanded PED > 1 P2 Price 5% P1 D Q2 Q1 Quantity 10%

20. Price Inelastic demand Means that a change in the price of the good or service will cause a small change in the quantity demanded. Price PED < 1 P2 20% P1 D Q2 Q1 Quantity 10%

21. Income Elasticity of demand (YED) Is a measure of the responsiveness of demand for a good to a change in income. A Normal good Has a positive income elasticity of demand. As income rises, demand increases Inferior goods Have a negative income elasticity of demand. As income rises, demand decreases. Price elasticity of supply (PES) Is a measure of the responsiveness of the quantity supplied of a good or service to a change in its price Indirect tax Is an expenditure tax on a good or service Incidence (burden) tax refers to the amount of tax paid by the producer or the consumer.

22. Cross elasticity of demand (XED) Measure of the responsiveness of the demand for a good or service to a change in the price of a related good Substitute goods Is goods that can be used instead of another such as coke and Pepsi. Substitute good has positive cross elasticity of demand Complement goods Goods which are used together, such as calculator and batteries. Complement goods have negative cross elasticity of demand.

23. THEORY OF THE FIRM Fixed cost Are costs of production that do not change with the level of the output. Eg. Land Fixed Cost Graph Cost F Quantity

24. Variable costs Are costs of production that vary with the level of output Eg. Labor, Material Cost F Quantity

25. Total cost Are the total costs of producing a certain level of output fixed costs plus the variable cost Average cots Is the average total costs of production per unit. Marginal costs Is the additional costs of producing an additional unit of output

26. Short run Period of time in which at least one factor of production is fixed SPAC1 SPAC5 SPAC2 SPAC4 SPAC3

27. The long run Is the period of time in which all factors of production are variable SPAC1 SPAC5 SPAC2 SPAC4 SPAC3

28. Law of diminishing average return As extra units of a variable factor are applied to a fixed factor, the output per unit of the variable factor will eventually diminish Diminishing Return Cost Quantity

29. Law of Constant Return As extra units are added, the increase in outputs will be equal to the increase in costs Law of Constant Return Cost Quantity

30. Law of diminishing marginal returns As extra units of a variable factor are applied to a fixed factor, the output from each additional unit of variable factor will eventually diminish Cost Law of diminishing marginal Return Quantity

31. Economies of scale Are any fall in long run unit costs that come about as a result of a firm increasing its scale of production Diseconomies of scale Are any increase in long run unit costs that come about as a result of a firm increasing its scale of production. Total revenue Is the aggregated revenue gained by a firm from the scale of a particular quantity of output.

32. Average revenue Is the total revenue received divided by the number of units sold. Usually the price is equal to average revenue. Cost A= D Quantity

33. Marginal revenue Is the extra revenue gained from selling an additional unit of a good or service Cost A = D Quantity Mr

34. Normal profits Are the amount of revenue needed to cover the total costs of production, including the opportunity costs. Mc Cost AC A = D Quantity Mr

35. Abnormal profits Are any level of profit that is greater than the required to ensure that a firm will continue to supply its existing good or service. Mc Cost AC Abnormal Profit A = D Quantity

36. Profit maximizing level of output the level of output where marginal revenue is equal to marginal costs. Shut down price Is the price where the average revenue is equal to average variable costs. Below this price, the firm or company will shut down in the short run. The break even price Is the price where average revenue is equal to the average total cost.