2. Economics The study of how people allocate their limited resources to satisfy their unlimited wants The study of how people make choices Resources Things used to produce other things to satisfy people’s wants Wants What people would buy if their incomes were unlimited

3. With limited income (resources), people must make choices to satisfy their wants. We never have enough of everything, including time, to satisfy our every desire. Individuals, businesses, and nations face alternatives, and choices must be made. Economics studies how these choices are made…

6. Natural resources Rent Human resources Wages Capital Interest Profit Risks

9. Command economy What to produce ? Determined by government preferences How to produce? Determined by government and their employees For whom to produce? Determined by government preferences Laissez-faire economy What to produce ? Determined by consumer's preferences How to produce? Determined by producers seeking profits For whom to produce? Determined by purchasing power Mixed economy What to produce ? Determined partly by consumer preferences and partly by government How to produce? Determined partly by producers seeking profits and partly by government For whom to produce? Determined partly by purchasing power and partly by government preference

13. The slope of the PPF curve is also called the marginal rate of transformation (MRT). As we increase the production of one good, we sacrifice progressively more of the other. The negative slope of the PPF curve reflects the law of increasing opportunity cost. As we increase the production of one good, we sacrifice progressively more of the other.

16. Individual demand Individual demand is how much of a product a consumer will buy at a given price. Demand is based on the actual ability of consumers to purchase the product, not just what they would like but cant afford. Demand curves slope down from left to right - this is because the higher the price the more of a consumers income must be spent on it & the more satisfaction they must get from it to justify the opportunity cost.

24. Deadweight loss from underproductionDeadweight loss from overproduction

26. Types of Elasticity elastic if the result is > 1, demand is said to be elastic inelastic if the result is < 1, demand is said to be inelastic unitary elastic if the result is = 1, demand is said to be unitary elastic perfectly inelastic if the result is = 0, demand is said to be perfectly inelastic

28. Income effect: When the price of a product falls, a consumer has more purchasing power with the same amount of income. When the price of a product rises, a consumer has less purchasing power with the same amount of income. Substitution effect: When the price of a product falls, that product becomes more attractive relative to potential substitutes. When the price of a product rises, that product becomes less attractive relative to potential substitutes.

29. firm is an organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. maximize profits The primary objective of a firm is to - maximize profits Profit (economic profit) is the difference between total revenue and total economic cost.

30. Total revenue is the amount received from the sale of the product: Total Revenue (TR) Total Revenue (TR) = Price per unit of output x Quantity of output sold Marginal revenue (MR) is the additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition, P = MR.

31. Total cost (total economic cost) is the total of Accounting costs (Explicit or out-of-pocket costs): involve a direct money outlay for factors of production (purchased inputs). Economic costs (Implicit costs): do not involve a direct money outlay. They include the full opportunity cost of every input (non-purchased inputs). Total Cost (TC) Total Cost (TC) = Total Variable Cost + Total Fixed Cost Total Variable Cost (TVC) = The cost of all Variable Inputs. Total Fixed Cost (TFC) = The cost of all Fixed Inputs. Variable Inputs Variable Inputs does vary are those inputs whose use does vary with the quantity of output produced. Fixed Inputs Fixed Inputs does not vary are those inputs whose use does not vary with the quantity of output produced.

32. not time In economics, the Long-Run and the Short-Run are not defined in terms of time, parameters vs. variables. but rather in terms of how many things in a situation are considered parameters vs. variables. Short-Run Short-Run is a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied. Long-Run Long-Run is a period of time in which the quantities of all inputs can be varied.

35. An Isoquant is the set of all combinations of variable inputs that could be used to produce a given quantity of output in the short run. Iso – «Equal»; Quant – «quantity» Isoquant – a line of equal quantity With a fixing level of output Q at some quantity we have an implicit relationship between units labor ( L ) and capital (K) Qc = F ( L, K ) It is possible to produce the same amount of output by using different combination of input.

36. ISOCOST line is the budget line of a producer in terms of two inputs. ISOCOST line is points of all the different combinations of labor and capital that firm can employ given the total cost and prices of inputs. ISOCOST lines expressed as C = w L + r K Where price of labor is wage - w price of the capital is interest - r total cost is - C Usually the ISOCOST line is linear with slope equal to ratio of the factor prices.