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TERMINOLOGY

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

23. 24. 25. 26. 27. 28. 29. 30.

Microeconomics – Concerned with specific economic units and detailed behaviour of those units Macroeconomics – Consider the economy as a whole or in basic subdivisions. Utility – Satisfaction that gets from consumption People have unlimited wants resources are scarce Investment in capital resources – Purchases of capital goods (new plant and equipment) Interest – Price paid for borrowing money Labour - All human physical and mental talents. Wages - Income occurring from labour. Entrepreneurial ability – Specialised form of human resource. Profit – Reward for entrepreneurship Perfect competition – no participants are large enough to have the market power. Rent – Income received by land. Investment – Process of producing capital goods. Interest - Payment for capital Wage – Income occurring to labour Profit- The reward for entrepreneurship Cost benefits principal – Systematic process of comparing cost and benefits. Marginalism – attempt to explain the discrepancy of value of goods (why diamond is expensive than water) Rational behaviour – Behaviour that involves deciding of choices in order to achieve the greatest satisfaction. Opportunity cost – the loss of potential from other alternatives when one option is chosen. (Opportunity cost of doing a degree is money you lose if you did a job instead) Marginal benefit ; the additional satisfaction that a person receives from consuming an additional unit Ex, someone is willing to pay additional $10 to buy an extra burger. More burgers he buys amount of money he is willing to pay decreases. Market equilibrium : A situation where supply of an item is exactly same as demand. (where supply and demand curves intersect) Price floor: legal minimum price Market clearing price = equilibrium price Rationing = controlled distribution of scarce resources Ceteris paribus (Other things being equal) : effect of something when all other fathers being unchanged Economic efficiency : producing goods and services to maximise the satisfaction of the society Marginal cost : Cost of producing an extra item Production possibility table: Representation of figures on a PPF curve on a table

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31. Production possibility frontier : Combination of production possibilities of two products

32.

L = unemployment (all resources are not productively used) D,J = Full employment

33. When economic growth occurs PPC expands 34. Price taker ; can’t decide the market price 35. Demand curve -Shifts along the demand curve are caused by Price changes

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- INWARD OR OUTWARD MOVE OF THE DEMAND CURVE IS CAUSED BY
o o o o 36. 37. 38. 39. 40. Numberof buyers Increase in income Improvements in technology Increase in income

Market demand is the sum of the individual demand Inferier good; Goods of which demand decrease as income increases Normal goods; Demand oncreases as income increases (Luxury Cars, diamonds ) Complementary good ; A good that is used in conjunction with another good Producer Surplus = The price difference between the prices the seller is willing to sell at and what he Receives 41. Consumer surplus : The difference between the price consumer is willing to pay and the actual price he has to pay. 42. Consumer surplus : Area between market price and the price consumer is willing to pay

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WEEK 1

TWO CATAGORIES OF RESOURCES
I. II. Property resoutces –Land, Row materials, Capitas Human resources- Labour, entreprenural ability

FOUR CATEGORIES OF RESOURCES
I. II. III. IV. Labour Capital – All manufactured aids (Buildings, Equipment, Human skills) used to produce goods and services Entrepreneurship Land

FIVE FUNDAMENTAL ECONOMIC PROBLEMS
I. II. III. IV. V. How much total output is to be produced? What combination of outputs is to be produced? How are these outputs to be produced? Who is to receive/consume these outputs? How can change be accommodated?

TWO TYPES OF EFFICIENCIES
1. Allocative efficiency : Production of goods most wanted by the society Does not always sit on the PPF curve Occurs when MB = MC Productive efficiency: Producing goods using lowest cost production methods Ex, Efficiently produce guns,, production is efficient but ne demand

2.

Productive efficiency sits on the ppf curve (A,B)>>>

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CHARACTERISTICS OF P ERFECT COMPETITION
1. All firms sell an identical product. 2. All firms are price takers. 3. All firms have a relatively small market share. 4. Buyers know the nature of the product being sold and the prices charged by each firm. 5. The industry is characterized by freedom of entry and exit

VARIABLES THAT INFLUENCE BUYERS
1. 2. 3. 4. Price of the good Income Taste Expectations

TYPES OF GOODS
1. 2. 3. 4. Normal goods : Demand increases as income increases (Luxury cars, diamonds) Inferior goods : Demand decreases as income decreases (Noodles) Substitute goods : Goods which can be replaced by others (different types of cars) Complementary goods : Goods used together (petrol)

REASONS FOR SHIFTS IN DEMAND CURVE
1. 2. 3. Shift along the demand curve : Change in price Shift of the whole curve : income, Technology, Preferences Number of buyers

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FACTORS THAT CAN CAUSE A SHIFT IN THE SUPPLY CURVE
1. 2. 3. 4. 5. Taxes Improvement in technology Prices of other goods Number of goods Market expectations

Total of individual supply = Market supply

     

Supplier surplus : Area above the curve Producer surplus : Area under the curve Total surplus : Sum of consumer surplus and producer surplus. Price below the equilibrium: Shortage Price the above the equilibrium: Surplus Both surplus and shortage affects the equilibrium Surplus decrease the price moving towards the equilibrium Shortage increase the price moving towards the equilibrium

HOW INCREASE IN DEMAND SHIFT THE EQUILIBRIUM

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CHANGES IN PRICE AND DEMAND ALONG WITH SHIFTS IN SUPPLY AND DEMAND CURVES

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