Review

1. Review

2. Supply and Demand • The law of demand holds that other things equal, as the price of a good or service rises, its quantity demanded falls.

3. The law of supplyholds that other things equal, as the price of a good rises, its quantity supplied will rise, and vice versa.

4. Factors that shift the demand curve include: • Change in consumer incomes • Population change • Consumer preferences • Prices of related goods: • Substitutes: goods consumed in place of one another • Complements: goods consumed jointly

5. Factors that shift the supply curve include: • Change in input costs • Increase in technology • Change in size of the industry

6. A price ceilingis a legal maximum that can be charged for a good. • A price flooris a legal minimum that can be charged for a good.

7. Scarcity, Choice, and Opportunity Cost • Human wants are unlimited, but resources are not. • Three basic questions must be answered in order to understand an economic system:

8. Capitalrefers to the things that are themselves produced and then used to produce other goods and services. • Production is the process that transforms scarce resources into useful goods and services. • Opportunity costis that which we give up or forgo, when we make a decision or a choice.

9. A producer has an absolute advantageover another in the production of a good or service if it can produce that product using fewer resources. • A producer has a comparative advantagein the production of a good or service over another if it can produce that product at a lower opportunity cost.

10. Capital goodsare goods used to produce other goods and services. • Consumer goodsare goods produced for present consumption.

11. The production possibility frontier (ppf) is a graph that shows all of the combinations of goods and services that can be produced if all of society’s resources are used efficiently.

12. Economic growthis an increase in the total output of the economy. It occurs when a society acquires new resources, or when it learns to produce more using existing resources.

13. Economic systems are the basic arrangements made by societies to solve the economic problem. They include: • In a command economy, a central government either directly or indirectly sets output targets, incomes, and prices. • In a laissez-faire economy,individuals and firms pursue their own self-interests without any central direction or regulation. • Mixed system

14. Scarcity Choices Choice In a World of Scarcity Wants vs. Resources

15. Economics • The study of how people make choices under conditions of scarcity and of the results of those choices for society. • The demand curve - based on the idea that people have a certain amount that they are willing to pay for a good or service, and that they will buy it if it costs less but not buy it if it costs more.

16. Wealth • Concentrated wealth can lead to abuses • Campaign contributions • Perceived injustice • stop participating or believing in Democracy • Working families use wealth differently • Economic safety nets