ECONOMICS

Social science concerned with using scarce resources to obtain maximum satisfaction of the unlimited wants of society.

Greek work for “household management”

Other things being equal or constant.

Economic agents are _________ (makes the most out of everything).

Application of positive economics to create policies.

Explanation of economic phenomena.

“Why’s” of economic behaviour.

Land, labor, capital, and entrepreneurial ability.

Land and natural resources.

Productive services embodied in human physical effort, skills, intellectual powers, and other.

Durable goods to produce other goods.

Ability to use the three factors of production to produce required goods and services.

How individual consumers and firms behave, and how the market allocates scarce resources. Does not concern the temporary fluctuations in the economy.

Concerns the economy as a whole. Explains why fluctuations happen, and investigate policies that can mitigate them.

Three essential phenomena of the economy

Its interactions affect the three essential phenomena of the economy.

Economic Goals

1st principle of economics.

Benefits of resources are distributed fairly

Society gets the most out of its scarce resources.

2nd principle of economics

What you give up to obtain an item.

3rd principle of economics

Small, incremental adjustments to an existing action plan.

4th principle of economics

5th principle of economics

6th principle of economics

Allocates resources through decentralized decisions or firms and households.

Concerns itself with who to hire and what to produce.

Concerns itself with what to buy and who to work for.

Market is guided by an ____________.

7th principle of economics

When the market fails to allocate resources efficiently.

Externality and Market Power

Impact of one person or firm’s actions on the well-being of a bystander.

Ability of a single person or firm to unduly influence market prices.

8th principle of economics

Comparing personal incomes, and comparing the total market value of a nation’s producation.

The amount of goods and services produced from each hour of a worker’s time.

9th principle of economics

Increase in the overall level of prices in the economy.

One of the causes of inflation.

10th principle of economics

There is a short-run inverse relationship between inflation and unemployment.

Used to simplify reality in order to improve our understanding of the world.

Economic Models

Visual model of how pesos flow through markets among households and firms.

Graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Occurs when no possible reorganization of production or distribution can make everyone better off without making someone else worse off.

Person that “pareto efficiency” was named after.

1st assumption in production possibilities frontier.

2nd assumption in production possibilities frontier.

3rd assumption in production possibilities frontier.

4th assumption in production possibilities frontier.

5th assumption in production possibilities frontier.

More of one factor, while others are at a constant, will result in lower per-unit returns at some point.

The responsiveness or sensitivity of consumers and producers to price and income changes.

>1

<1

=1

Infinite

0

Degree of responsiveness of consumers to a price change.

Essential

Less or no substitute

Change in price of product that has no effect on income or budget

Not so essential

Huge number of substitutes

With effect on income or budget

Responsiveness of producers’ supply following a change in the price of the product.

Reaction of consumers’ demand to a change in the price of another product.

Product x and y are substitute goods.

Product x and y are complementary goods.

Product x and y are independent goods.

Degree to which buyers’ demand respond to a change in their incomes.

Good is a normal good.

Good is a luxury.

Good is a necessity.

Good is an inferior good.

Refers to the number or amount of goods and services are willing and able to buy at a given price, place, and a period of time.

States that as price increases, quantity demanded decreases (if other factors remain constant).

Non-price determinants of demand

Affects the demand of normal and inferior goods.

Its demand increase when income increases. Basic necessities such as rice, utilities, medical and dental services.

Its demand falls when income rises. Includes public transportation.

Demand is affect by prices expected in future periods.

Demand for any particular good will be affected by changes in the prices of related goods.

Goods that can be used in place of other goods.

Goods that cannot be used without the other.

Affected by religion, culture, traditions, age, trend, technology, and many more.

Increase in ________ means more demand for goods and services.

Representation of the relationship between demand and its determinants expressed using mathematical language.

Linear equation of demand function.

Shows the tabular representation of the relationship between quantity of a good demanded and the price of that good.

Shows graphically the relationship between the quantity of a good demanded and its corresponding price, with other variables held constant.

Shifting from one demand curve to another. Brough by the changes in the non-price determinants of demand.

Movement along a demand curve. Brought to by change in the price of goods and services.

Refers to the amount or quantity of goods and services producers are willing and able to supply at a given price, at a given period of time.

States that as price increases, quantity supplied also increases.

Non-price determinants of supply

Mathematical expression of the relationship between price and quantity supplied.

Linear equation of supply function.

Shows the tabular representation of the relationship between the quantity of a good supplied and its price.

Graph that shows the relationship between the quantity of a good supplied and its price, with other variables held at constant.