LIMITS ALTERNATIVES AND CHOICES ACTIVITY 1 Your first

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 Qd $5 10 4 20 3 35 2 55 1 80 Price (per bushel) P 5 4 3 2 1 0 D 10 20 30 40 50 60 70 80 Quantity Demanded (bushels per week) Q

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=Lw. Lh 6 ax 0 z. TE

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=V 0 t. IOq U 7 m-c