ECON REVIEWER 4.
People Respond To Incentive
Economics ● Incentive is what causes the person
● The study of how people allocate and to act.
use scarce resources. ● Economic Incentive
● Moral Incentive
Scarcity ● Social Incentive
● There is not enough of everything to 5. Trade Can Make Anyone Better
go around. ● Comparative Advantage
● People have unlimited wants but ● International Trade
limited resources. ● Barter System/Business Partners
6. Markets Are Usually A Good Way
Types and Examples of Resources To Organize Economic Activity
1. Land - farmlands, oils, minerals ● Decentralization
2. Labor - workers, healthcare ● Market economy - an economy that
providers allocates resources through the
3. Capital/Machinery - hammers, tools, decentralized decisions of many
saw firms and households as they interact
4. Entrepreneurship - online platforms in the market for goods and services.
7. Governments Can Sometimes
10 Principles of Economics Improve Economic Outcomes
1. People Face Trade-Offs ● Efficiency and Equity
● To get one thing, we usually have to ● Market failures occur when the
give up something else; no such market fails to allocate resources
thing as a free lunch. efficiently. governments can step in
2. The Cost of Something Is What You and intervene in order to promote
Give Up To Get It efficiency and equity.
● Opportunity cost - the next best 8. The Standard of Living Depends on
alternative forgone. the Country’s Ability to Produce
● One you give up to prioritize Goods and Services
another. 9. Growth of Money Leads to Inflation
3. Rational People Think at the 10. There is a Short Run TradeOff
Margins Between Unemployment:Inflation
● Making changes are small,
incremental changes to an existing Components of Circular Flow
plan of action. ● Household
● People will only take action if the ● Firms
marginal benefit exceeds the ● Resource Market
marginal cost. ● Product Market
● Government
● Foreign Markets
Demand Determinants of Supply
● Consumers’ desire and ability to 1. Price of Commodity
purchase products (goods and 2. Price of factor of production/inputs
services) at a given price. 3. Technology
4. Government
Law of Demand 5. Future expectations of prices
● As prices increase, demand 6. Population of suppliers
decreases and vice versa. Cities 7. Price of other commodities
paribus 8. Transportation: communication
9. Feedback from consumers
Demand/Supply Presentation 10. Objectives of the firm
● Schedule - a table
● Graph - a curve Water-Diamond Paradox
● The diamond-water paradox points
Determinants of Demand out that practical things that we use
1. Price every day often have little or no
2. Trends value in exchange. Subjective value
3. Income can show diamonds are more
4. Taste and Preferences expensive than water because people
5. Population subjectively value them.
6. Expectations
7. Price of Substitute: complimentary Equilibrium
products ● The point which defines the price
between suppliers and consumers
Supply agree on.
● The quantity of products (goods and
services) a supplier is willing and
able to sell at a given price
Law of Supply
● As price changes, Qs will also
change in the same direction.
● As the price of the product increases,
the quantity of a product the supplier
is willing and able to sell will also
increase; and vice versa. Ceteris
paribus
● This implies a positive relationship.
