Economics

Chapter 1 The Big Ideas in Economics
Think of why some goods should be allocated by money while some not.
Why demand curve is downward sloping?
Two effects: 1.Substitution effect (dominent) 2.Income effect (small)
The demand&supply curve can be read horizontally or vertically. You should be familiar with both ways of reading.

Chapter 3 Supply&Demand

Concepts:
1.A normal good: a good for which demand increases when income increases. An inferior good: a good for which demand decreases when income increases.

Five main reasons why the demand curve shifts:
1.An individual’s income changes
2.A change in tastes
3.The number of consumer changes
4.Change in expectations
5.Changes in the price of complements and subsititutes

Five main reasons why the supply curve shifts:
1.Changes in the price of the complements and subsititutes
2.Changes in expectation
3.The number of producers changes
4.Changes in technology
5.Changes in input prices

Chapter 5 Elasticity and Its Applications
The fundamental determinant of the elasticity of demand is how easy it is to substitute one good for another.

Less elastic More elastic Fewer substitutes More substitutes short run (less time) long run (more time) categories of product specific brands Necessities Luxuries small part of budget large part of budget
The fundamental determinant of the elasticity of supply is how quickly per unit cost increase with an increase in production.

Less elastic More elastic
Difficult to increase production at constant unit of cost (e.g: some raw materials)
Easy to incease production at constant unit cost (e.g: some manufactured goods) Large share of