Economics studies the choices that people, businesses and governments make given that they have scare resources. Why Do People INteract?

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Economics studies the choices that people, businesses and governments make given that they have scare resources.

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WHY DO PEOPLE INTERACT?

Marginal Rate of Transformation

Opportunity Cost

COMPARATIVE ADVANTAGE

ABSOLUTE ADVANTAGE

THE THEORY OF COMPARATIVE ADVANTAGE:  Argues that specialization (in the good in which an individual or country has a comparative advantage) and trade will benefit all trading parties, even those that may be absolutely more efficient producers.  

AND THIS IS WHY PEOPLE TRADE OR INTERACT

THE ROLE OF MONEY

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THE STRUCTURE OF THE ECONOMY

 


SUPPLY AND DEMAND

The price of an item is the opportunity cost of that item.

DEMAND

 

SUPPLY


A Change in Demand 

Change in the entire relationship between the quantity demanded and the price of a good.

Factors that lead to a change in demand

  1. Price of other goods
  1. Substitutes
  2. Compliments

  1. Income and wealth  
  1. Normal goods
  2. Inferior goods

  1. Tastes and preferences

  1. Expectations about future
  1. Future price increase
  2. Future increase in income
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  1. Number of households (or population)


A Change in the Quantity Demanded vs. a Change in Demand


A Change in Supply

Change in the entire relationship between the quantity supplied and the price of a good.

Factors that lead to a change in supply

  1. Price of resources used to produce the good

  1. The prices of related goods that the firm produces
  1. Related goods whose inputs are complimentary in production
  2. Related goods whose inputs are substitutes in production

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