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Goods and Services

Oneof the most basic ideas in economics is goodsand services. More than anything else,money is spent on goods and services. It helps to know the difference between two.

Agoodis something that you can use or consume, like food or CDs or books or a car or

clothes. You buy a good with the idea that you will use it, either just once or over and overagain.

Aserviceis something that someone does for you, like give you a haircut or fix you dinneror even teach you social studies. You don't really get something solid, like a book or a CD,but you do get something that you need.

Opportunity Cost

A benefit, profit, or value of something that must be given uptoacquire orachieve something else. Since everyresource (land,money,time,

etc.) can be put to alternativeuses, everyaction,choice,ordecision hasan associated opportunity cost.

Opportunitycosts arefundamental costs ineconomics,and are usedincomputingcost benefit analysis of aproject.

'NORMAL GOOD'An economic term used to describe the quantity demanded for a particular good

or service as a result of a change in the given level of income. A normal good is

one that experiences an increase in demand as the real income of an individual

or economy increases.

MARGINAL COST OF PRODUCTION'The change in total cost that comes from making or producing one additional

item. The purpose of analyzing marginal cost is to determine at what point an

organization can achieve economies of scale. The calculation is most often used

among manufacturers as a means of isolating an optimum production level.

'MARGINAL BENEFIT'

The additional satisfaction or utility that a person receives from consuming anadditional unit of a good or service. A person's marginal benefit is the maximum

amount they are willing to pay to consume that additional unit of a good or

service. In a normal situation, the marginal benefit will decrease as consumption

increases.

Substitute Goods

Substitute goods are two goods that could be used for the same purpose.

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If the price of one good increases, then demand for the substitute is likely to rise.

Therefore, substitutes have a positive cross elasticity of demand.

Band Wagon Effect :-

People sometimes demand a commodity because others are purchasing it in order to be faisionable

Production Possibility Curve :-

A line that describes the two production, PPC shows different combination of two goods and that

combinationcan be or cannot be produced

The production Possibility is called marginal rate of transformation

Market Equilibrium is the situation when quantity deny = Quantity Supplied

Trade Off giving up something to get Something

P=30-Q/200, Q = 6000 - 200P

a. Compute the point elasticity at P=$10; at P=$15

Q1 = 4000, Q2 = 3000

Point Price Elasticity of Demand is given by the formula Ed= (P/Q)(Q/P).

Q/P is the derivative of the demand function, so it equals -200.

At price P=$10 we calculate

Ed1 = 10/4000*(-200) = -0.5, so the demand is inelastic.

At price P=$15 we calculate

Ed2 = 15/3000*(-200) = -1, so the demand is unit-elastic.

b. How does the point elasticity vary with the price?

As we can see with the increase of price, the point elasticity decreases, so the demand becomes more

elastic.