- Production divides into goods and services

✓ Consumer surplus (Maximum price willing to spend - Actual - Goods are tangible (cars, steel, clothing)
Price) - Services are intangible (legal advice, internet, education)
✓ Producer surplus = (total revenue - total cost) - Scarcity implies choice
✓ Average Total Cost (ATC) = Total Cost/Q or AFC + AVC - Choice implies cost
✓ Average Variable Cost (AVC) = Total Variable Cost /Q - Opportunity cost is the value of the next best choice
✓ Fixed Cost (AFC) = TFC/Q
✓ Total Cost (TC) = TVC + TFC -Scarcity on graph is the space unattainable outside the
✓ Total Variable Cost (TVC) = AVC X Output boundary
✓ Total Fixed Cost (TFC) = TC-TVC - Choice on graph is the option to choose any attainable points
✓ Marginal Cost (MC) = Change in Total Costs/Change in Output - O.C. is the negative slope of the graph
✓ Marginal Product (MP) - Change in Y / Change in X
- With every choice made there is an opportunity cost
✓ Marginal Revenue (MR) = Change in Total Revenue / Change in
- Concave to the origin indicates that the O.C. of either good
Q
increase as we increase production in either good
✓ Average Product (AP) = TP / Variable Factor
- A straight line means one good's O.C. stays constant
✓ Total Revenue (TR) = Price X Quantity
✓ Average Revenue (AR) = TR/Output
✓ Total Product (TP) = AP X Variable Factor
✓ Economic Profit= TR-TC > 0
✓ A Loss TR-TC <0
✓ Break Even Point = AR = ATC
✓Profit Maximizing Condition = MR = MC
✓ Revenue maximisation: MR=0
✓ Sales maximisation: AR=ATC
✓ Allocative efficiency= P=MC
Profit= (price-ATC) Q

An economy with a free market is self-organizing

- Actions that hold an economy come from mostly self-interest
- Economic order is generally known to be efficient
- Incentives are key to peoples buying and selling patterns
(Increase price = less demand)
- Decision makers (consumers, producers, government)
(Increase demand = cheaper price)
-Traditional economies is based mostly off tradition
Price of inputs, tech, government taxes or subsidies, prices of
- Command economies are based off a central authority
other products, significant changes in weather and number of
- Free-market economies is based off private firms and
suppliers all cause a shift in the supply curve.
households
- Every economy is a mixed economy, using behaviours from all
Consumers’ income, Prices of other products, Consumers’
3 types
preferences, Population, changes in weather change demand
-Demand is elastic when quantity demanded responds to
change in price
-Excess demand is when quantity demanded exceeds quantity
- Demand is inelastic when quantity demanded does not
supplied (below equilibrium)
respond as much to change in price
- Excess supply is when quantity supplied exceeds quantity
-Horizontal line elasticity = infinity
demanded (above equilibrium)
- Vertical line elasticity = 0
- Excess supply causes prices to lower
- Products with close substitutes have elastic demands
- Excess demand causes prices to rise
- Products with no substitutes have inelastic demands
- Absolute price is the price to acquire one unit
- Cheaper products have inelastic demands
- Relative price is the ratio between two absolute prices
- Expensive products have elastic demands
-n=0 (perfectly inelastic)
-Normative advice tells others what they should ought to do
- n=1 (unit elastic)
- Normative statements are more opinionated
- n= infinity (perfectly elastic)
- Positive advice gives a strategy to normative advice
- (Expenditure = Price x Quantity)
- Positive statements do not need to be true but it must be
possible to test

-Cross-sectional data takes observations on a variable in

different places at the same time Normal Elasticity
- Time series data uses one observation variable at successive
points in time
- Scatter diagrams show the relation between two different
variables Income Elasticity

Formula for value of index given is [(V2-V1) / V1] x 100\

Cross Elasticity
- Economics is the study of the use of scarce resources to satisfy
unlimited human wants. -Percentage change (delta / average of 2 points)
- Resources (land, labour, capital) a.k.a. factors of production
 - Diminishing marginal utility is defined when successive units
- Normal goods increase in income increase quantity demanded of product are consumed overtime and the utility diminishes as
- Inferior goods increase in income lowers quantity demanded product consumption increases
- The more necessary an item the lower its income elasticity - Total utility rise and marginal utility declines as consumption
- Luxuries have income elasticity greater than 1 increases
- Inferior good have a negative income elasticity - Utility maximizing is when marginal utility is equalized on
-Complements have negative cross elasticities (rise in price of X each product
leads to decline in quantity demanded of Y)
- Substitute products have positive cross elasticities - Single proprietorship has one owner
- Ordinary partnership has two or more owners who are
-Price floors are the minimum price that a good can be responsible for actions and debts
exchanged - Limited partnership has general partners who manage the
- Price floors above the equilibrium are binding and will raise firm and are liable for the firms’ actions and debts, and also
the price limited partners who only risk the money they have invested
- Government will buy excess supply if they make a binding - Corporation have a legal existence separate from that of the
floor price owners
- Price ceilings are the maximum price at which a good can be - State owned enterprise are owned by the government
exchanged - Non-profit organizations provide goods and services just to
- Binding price ceilings lead to excess demand cover their costs
- Excess is demand is dealt by selling by sellers' preferences - Firms located in more than one country are multinational
- Hidden markets are created when binding price ceilings are enterprises
made
Accounting profits=Revenues−Explicit costs
-The area below demand curve and above supply curve is Economic profits=Revenues−(Explicit costs+Implicit
surplus costs)=Accounting profits−Implicit costs
-Below equilibrium price line is producer surplus -Explicit costs are out-of-pocket costs for a firm—for example,
-Above equilibrium price line is consumer surplus payments for wages and salaries, rent, or materials.
-Implicit costs are the opportunity cost of resources already
owned by the firm and used in business—for example,
expanding a factory onto land already owned.

The short run is the length of time over which some of

the firm’s factors of production are fixed (and thus cannot
be changed).
The long run is the length of time over which all of the
firm’s factors of production can be varied, but its
technology is fixed.
The very long run is the length of time over which all the
firm’s factors of production and its technology can be
varied.

Marginal product capital/ price capital

-Capacity is the largest level of output with minimum short-run

ATC
-Real income is the estimation of an individual's purchasing -Efficient scale is the lowest level of output with minimum long-
power run ATC
- Substitution effect increases quantity demanded of a product
whose price has fallen and vice versa
- Income effect leads consumers to buy more of a product
whose price has fallen
- Combination of income and substitution effects will caused a
negatively sloped demand curve
- Demand curves are negatively sloped unless it is an inferior
good and the income effect outweighs the substitution effect
(giffen good)

- Utility is the satisfaction a consumer gets when consuming a

good or service
- Total utility is the total satisfaction
- Marginal utility is the additional satisfaction if one more unit
is consumed