Chapta 6

This Chapter was about floors, ceilings, shortages, and surpluses. A price ceiling is the legal maximum on which a good can be sold at. A price floor is the legal minimum that a good can be sold at. If a price ceiling is below equilibrium then it means that it is binding. If the price floor is above equilibrium it is binding. Binding means that it is not allowing the market to reach equilibrium and therefore results in a shortage or surplus of the good. This is bad because either there is too much of the good and it goes to waste or not everyone can get the good. The U.S. set a price ceiling on oil and OPEC raised the price of crude oil causing long lines at gas pumps because there was a shortage of oil. Another example of a price ceiling is rent control. If there is a rent control it will cause a shortage in the amount of apartments available.

Chapta 5

Chapter 5 is all about elasticity of supply and demand. Elasticity is the measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants. Price elasticity of demand is a measure if how much the quantity demanded of a good responds to change in the price of that good computed as the percentage chance in the quantity demanded divided by the percentage change in price. There is also cross price elasticity and Income elasticity. Cross price elasticity is a measure of how much the quantity demanded of one good responds to a change in the price of another good computed as the percentage change in quantity demanded by the percentage change in the price of the second good. Income elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in consumers income computed as the percentage change in quantity demanded divided by the percentage income.

Chapta 4

Chapter 4 is all about markets and supply and demand. Competitive markets are groups with a lot of buyers and sellers so that not one person can influence the market. Perfectly competitive markets are markets where all goods are exactly the same and sellers are so numerous that no single person can make an impact. Price takers can buy all they want or sell all they want at a set price in a perfectly competitive market.  Quantity Demanded is the amount of a good demanded.  Law of demand is the quantity demanded of a good falls when a price of a good falls. Demand curve is the graph that shows the relationship between the price of a good and the quantity demanded. Market demand is the sum of all individual demands for a particular good or service.  normal foods are a good for which other things equal an increase in income leads to increase in demand for these products. Inferior goods increase in income means decrease in these goods. Substitutes are two goods for which an increase in the price of one leads to a decrease in demand for the other. Compliments are two goods for which an increase in the price of one leads to a decrease in demand for the other.

Chapta 3

Trade allows people to get goods from all around the world available to them. Trade will make everyone better off. It allows producers to go outside of their production frontier and benefit. Producers view their comparable advantage to another producer who makes different goods and determine who is most efficient and has the least opportunity cost by making whichever good. They then specialize in making that specific good. Opportunity cost is what is given up to get a good. Opportunity cost is used to compare who has a particular advantage at making what. Absolute advantage is having the ability to produce more goods with less inputs. Both trading parties should gain in some sort of way through trade and specialization. If each producers sticks to whichever good they produce the best and trade with one another they will most likely both benefit.

Chapter 2

Chapter two is all about economics and how it relates to science. Economists make theories, observe and examine those theories and then make more theories based on what they find. Economists make assumptions to simplify things to look at. There are so many different goods and countries in the world it would be hard to keep track. However, economists will narrow it out to two countries and two goods to make comparisons with one another for their theories. Assumptions are also a big part of theories that are made. Just like scientists, economists use graphs and charts for demonstrative purposes. The circular flow diagram shows what might happen to a dollar that is put into the economy. There are firms and households. Households buy and consume goods and own and sell factors of production. Firms produce and sell goods and hire and use factors of production. They both put in and receive money from markets for goods and services as well as markets for factors of production. Another common graph is the production possibility frontier. This graph shows the production possibilities and the most efficient ways of production. Assuming a company sells two goods it shows the quantity of goods produced at highest efficiency on the frontier. Points beyond the line are not possible while points inside mean that the company is not selling at highest efficiency.