LIMITS, ALTERNATIVES

AND CHOICES
 ACTIVITY 1
• Your first assignment:
• If you had $1 billion, what would you do
with it? Be as specific as possible.
 SCARCITY
(Scarce Resources)
• limited amount of resources
that are never sufficient to
satisfy people’s virtually
unlimited economic wants
• Limited resources, unlimited
wants
 MARGINAL
• In economics, this means
“extra,” “additional,” “next” or
“change in”
 OPPORTUNITY COST
• For every decision, you must give
up the opportunity of getting the
next best alternative
• Ex- studying for a test rather than
going to the movies or a concert
• ***No such thing as a free lunch
 UTILITY
• The pleasure, happiness or satisfaction
obtained from consuming a good or service
• Measured by the imaginary unit of “utils”
• ***economists assume that people act
rationally when making decisions in order to
maximize utility
 LAW OF DIMINISHING
MARGINAL UTILITY
• At some point, with each additional unit
consumed, the individual will receive less
and less satisfaction
• Very subjective
 MARGINAL ANALYSIS
• Comparison of marginal benefits and
marginal costs in order to make decisions
• Ex- Should you attend college? Should a
business expand production? Should the
government increase its defense program?
• Continue until MB > MC
 DEMAND
• Shows how much of a product
that consumers are willing and
able to purchase at each of a
series of possible prices at a
specified period of time
 QUANTITY DEMANDED
• The amount of a good or
service that buyer(s) want to
purchase at a particular price
during some time period
 LAW OF DEMAND
• As price falls, the quantity demanded rises,
and as the price rises, the quantity
demanded falls.
• ***inverse relationship between price and
quantity demanded
INDIVIDUAL DEMAND
Remember - Demand goes Down
P
6
Individual
Demand 5

Price (per bushel)

P Qd 4
$5 10
3
4 20
2
3 35

2 55 1 D

1 80 0 Q
10 20 30 40 50 60 70 80
Quantity Demanded (bushels per week)
 SUBSTITUTE GOODS
• one that can be used in place of
another good
• An increase in the price of one good
will increase the demand of its
substitutes and vice versa
COMPLEMENTARY GOODS
• One good that is used together with another
good
• If the price of one goes up, the demand for
the complement will decline and vice versa
• Ex- Peanut butter and Jelly, tuition and
textbooks
DETERMINANTS OF DEMAND
• Changes In: TRIBE
• T- Tastes and preferences
• R- Related Goods’ Price
• I- Income of Buyers
• B- Buyers (the # of)
• E- Expectations of the Future
 AC/DC Econ Video - DEMAND
• https://www.youtube.com/watch?v=LwLh6
ax0zTE
 LAW OF SUPPLY
• As prices rise, the quantity
supplied rises… as prices fall,
the quantity supplied falls
• Direct relationship between
price and quantity supplied
 DETERMINANTS OF SUPPLY
• R- Resource Prices- Inputs that go into making a
g/s
• O- Other Goods’ Prices - Substitutes (milk/cheese)
in production and joint products (mulch/lumber)
• T- Taxes and Subsidies
• T – Technology Change- increased/decreased
efficiency
• E- Expectations of Suppliers- expect. of future
prices
• N- Number of Sellers- more suppliers = higher S
 EQUILIBRIUM PRICE
• The price where the intentions of
buyers and sellers meet
• Quantity Demanded = Quantity
Supplied
ACDC Supply and Demand Shifts
• https://www.youtube.com/watch?v=V0tIOq
U7m-c