Topic 1: What Is Economics?
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Economics: Study of how people allocate scarce resources.
Microeconomics: Behavior of individuals, firms, markets.
Scarcity: Limited resources vs unlimited wants.
Opportunity Cost: Value of next best alternative foregone.
Positive vs Normative Statements:
o Positive: Fact-based ("what is")
o Normative: Opinion-based ("what ought to be")
Topic 2: The Economic Problem & PPF
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Factors of Production:
o Land, Labor, Capital, Entrepreneurship
PPF (Production Possibility Frontier):
o Shows trade-offs and opportunity cost.
o Bowed-out shape = Increasing opportunity cost.
o Points on the curve = Efficient
o Points inside = Inefficient
o Points outside = Unattainable (with current resources)
Economic Growth: Outward shift of PPF (due to better tech or more resources)
Topic 3: Demand and Supply
Demand:
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Law of Demand: Price ↑ → Quantity demanded ↓
Shift Factors: Income, tastes, expectations, number of buyers, prices of related goods.
Substitute Good: ↑ price of one → ↑ demand for the other
Complement Good: ↑ price of one → ↓ demand for the other
Supply:
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Law of Supply: Price ↑ → Quantity supplied ↑
Shift Factors: Input prices, tech, taxes/subsidies, expectations, number of sellers
Equilibrium:
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Qd = Qs
Surplus: Price above equilibrium → downward pressure on price
Shortage: Price below equilibrium → upward pressure on price
Topic 4: Market Efficiency
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Consumer Surplus (CS): Willingness to pay − Price
Producer Surplus (PS): Price − Minimum acceptable price
Total Surplus (TS) = CS + PS → Maximized at equilibrium
Deadweight Loss (DWL): Loss of efficiency due to under/overproduction
Allocative Efficiency = MB = MC
Topic 5: Elasticity
Price Elasticity of Demand (PED)
Measures how responsive quantity demanded is to a price change
Formula:
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Elastic: PED > 1 (sensitive)
Inelastic: PED < 1 (not sensitive)
Unit Elastic: PED = 1 → Total Revenue is maximized here
Total Revenue (TR) and PED:
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Elastic demand: ↑ price = ↓ TR
Inelastic demand: ↑ price = ↑ TR
Unit elastic: TR is constant
Cross-Price Elasticity (XED):
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Positive = Substitutes
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Negative = Complements
Income Elasticity of Demand (YED):
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Positive = Normal goods
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Negative = Inferior goods
Summary of costs