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Intro to economics


SUPPLY & DEMAND- determine the quantity of each good produced & the price of which its sold.
MARK­ET-a group of buyers & sellers of a particular good or servic­e.(the buyers as a group determine the demand for the product & the sellers the supply).
COMP­ETITIVE MARKET-a market in which there are so many buyers & so many sellers that each has a negligible impact on the market price.
QUANTITY DEMAND­ED­-the amount of the good that buyers are willing & able to purchase.
LAW OF DEMAND When the price of a good rises, the quality demanded of the good falls, & when the price falls, the quantity demanded rises.
DEMAND SCHEDU­LE-A table that shows the relati­onship between the price of a good & the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy.
DEMAND CURVE­-the lien relating price & quantity demanded.
MARKET DEMAND­-the sum of all the individual demands for a particular good or service curve to the right increase in demand­,curve to left decrease in demand.
NORMAL GOOD-the demand for a good falls when income falls.
INFERIOR GOOD-the demand fora good rises when income falls.
SUBS­TIT­UTE­S-A fall in price of one good reduces the demand for another good.
COMP­LEM­ENT­S-the fall in one goods price raises the demand for another good.
QUANTITY SUPPLI­ED­-the amount that sellers are wiling and able to sell.
LAW OF SUPPLY when the price of a good rises the quantity supplied of the good also rises, when the price falls the price quantity supplied falls as well.
SUPPLY SCHEDU­LE­-shows the relati­onship between the price of a good & the quantity supplied, holding constant everything else that influences how much producers of the good want to sell.
SUPPLY CURVE­-r­elates price and quantity supplied.
EQUI­LIB­RIU­M-The point at which the supply & demand curves intersect equi­librium price price at the inters­ection equi­librium quanti­ty­qu­antity at the inters­ection.
SURP­LUS- suppliers are unable to sell all they want at the going price.
SHOR­TAG­E­-de­manders are unable to buy all they want at the going price, falling prices in turn increase the quantity demanded & decrease the quantity supplied.
ELAS­TIC­ITY a measure of the respon­siv­eness of quantity demanded or quantity supplied to a change in one of its determ­inants.
LAW OF DEMAND states that a fall in the price of a good raises the quantity demanded.
PRICE ELASTICITY OF DEMAND a measure of how much the quantity demanded of a good responds to a change in the price of that good. elas­tic if the quantity demanded responds substa­ntially to changes in the price. inel­astic if it responds only slightly to changes in the price. goods with close subs tend to have more elastic demand, necess­ities tend to have inelastic demands whereas luxuries have elastic demands.
TOTAL REVENUE the amount paid by buyers & received by sellers of a good.­in­elastic demand cause an increase in the price and causes an increase in TR, elastic and increase in price cause a decrease in TR. Elasticity greater than 1 move in opp direct­ions, less than 1in same direction, unit elasticity or equal to 1 TR remains constant
INCOME ELASTICITY OF DEMAND a measure of how much the quantity demanded of a good responds to a change in consumers income.
MACR­OEC­ONO­MICS the sutdy of econom­y-wide phenomena including inflation unempl­oyment & economic growth.
MICR­OEC­ONO­MICS the study of how households & firms make decisions and how they interact in markets.
GDP measures the total income of a nation, it is the most closely watched economic statistic, best single measure of society's economic well being. It measures two things at once: the total income of everyone in the economy & the total expend­iture on the economies output of goods & services. econ­omy's income is the same as its expend­iture, cuz of buyers and sellers* Y=C+I+G+NX
CONS­UMP­TION spending by households on goods and services, with the exception of purchases of new housin­g(a­utos, applia­nces, food clothes)
INVE­STM­ENT the purchase of goods that will be used in the future to produce more goods & services.
GOVT PURCHA­SES include spending on goods & services by local,­sta­te,­& federal govts(­inc­ludes the salaries of govt workers as well as expend­itures on public works)
NET EXPORTS equal the foreign purchase of domest­ically produced goods(­exp­orts) minus the domestic purchases of foreign goods(­imp­orts)
NOMINAL GDP the production of goods and services valued at current prices.
REAL GDP the production of goods and services valued at constant prices.
INFL­ATION RATE the percentage change in some measure of the price level from one period to the next.
CPI a measure of overall cost of the goods & services bought by a typical consumer.
PRODUCER PRICE INDEX a measure of the cost of a basket of goods and services bought by firms.
INDE­XAT­ION the automatic correction by law or contract of a dollar amount for the effects of inflation.
NOMINAL IR The interest rate as usually reported without a correction for the effects of inflat­ion(how fast money in your bank rises over time)
REAL IR the interest rate corrected for the effects of inflat­ion(how much your purchase power increase over time)
3 Steps to analyzing change in equili­brium
1)­Decide whether the event shifts the supply curve, the demand curve, or some times both. 2) Decide whether the curve shifts to right or left. 3) Use supply & demand diagram to compare the initial & new equili­brium.
GDP deflator vs CPI
the first difference is that GDP D reflects the price of all goods and services produced domest­ically, CPI reflects the price of all goods & services bought by consumers. The second is how various prices are weighted to yield a single number for the overall level of prices.CPI compares the price of a fixed basket of goods & services to the price of the basket in base year, GDP D compares the price of currently produced goods & services to the price of the same goods & services in the base year.
the slope of a linear demand curve is constant, the elasticity is not because the slope is the ratio of changes in the two variables, whereas elasticity is the ratio of percentage changes in the two variab­les
at points a low price & high quantity the demand curve is inelastic. At points with a high price & low quantity the demand curve is elastic.
Normal goods-have positive income elesta­cities. Inferior goods- have negative income elesta­cit­ies.
Real vs Nominal- One of two things have to be true is TR increase from one year to the next: The economy is producing a larger output of goods & services OR goods & services are being sold at higher prices


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