Limited in supply, people must make choices.
Scarce resources
abundant or unlimited, no opportunity cost.
Free Resources
The best alternative you give up when you make a choice.
Opportunity Cost
– focuses on small units such as individuals, firms, and businesses.
Microeconomics
– looks at the whole economy such as inflation, unemployment, and government policies.
Macroeconomics
– deals with facts and objective statements, “what is.”
Positive Economics
– deals with opinions and value judgments, “what should be.”
Normative Economics
Law of Demand – when price ______ , demand ________ (inverse relationship).
decreases
increases
Factors affecting demand:
-income
-related goods
-taste
-population
-expectations
– demand falls when income rises.
Inferior goods
– demand rises when income rises.
Normal goods
– desire + ability + willingness to pay.
Effective demand
happens when non-price factors change (e.g., better technology).
Shift in supply curve
Law of Supply – when price _______, supply _______ (direct relationship).
increases
increases
– desire to buy but without ability to pay.
Latent demand
Factors affecting supply:
-technology
-subsidy/tax
-input prices
-labor
-expectations
