• cross price elasticity - %change in QD/ %change in price 
• x/0.2 =-2.5
• cross price - elasticity - change in price of one product on the demand of another 
• cross price elasticity positive value indicates substitutes and negative values indicates compliments 
• a budget is balanced when the governments revenue equals what the government spends in any given fiscal year 
• main sources of taxes to federal government : payroll taxes, social retirement receipts
• state government main sources of income : sales and excise taxes and state individual and corporate income taxes 
• federal government: excise tax, individual income tax, corporate income tax 
• state government: excise tax, income tax, individual income tax, sales tax 
• local government: sales tax, excise tax, property tax 
• sales taxes are regressive 
• federal income taxes are progressive 
• surplus/ deficit is a flow 
• national debt : stock 
• federal spending : pensions and income security, interest on national debt, health, national defense 
• in choosing which tax to use government uses fairness and now easy it is to collect taxes 
• 3 type of taxes : progressive, regressive, proportional 
• stock - denotes the total level or amount of a particular point in time 
• flow - the change to the stock of that something over a period of time 
• a proportional tax is on in which the average tax rate stays the same as income increases 
• a regressive tax is on in which average tax rate decreases as income increases     

• inefficient allocation of resources - allocation of resources in such a way that is possible to increase the production of one good without decreasing the production of another 
• when resources are allocated in such a way that it is possible to increase the production of another, then the allocation of resources is inefficient 
• specialization - the result of low cost producers focusing all their efforts on producing a single good or service 
• terms of trade - the price of one good in terms of another 
• As long as there are differences in opportunity costs, there are comparative advantages, and there will be potential for trade to make both parties better off 
• whether a good or service will be traded depends largely on the terms associated with the trade 
• given the option of being self-sufficient or trading with others as long as a comparative advantage exists there will be potential for trade to make both parties are better off 
• terms of trade - the price of one good, service, or resource in terms of another sellers opportunity cost < price < buyers opportunity cost   
• specialization causes individuals and nations to become interdependent 
• simple model of production assumes that the opportunity cost of production is constant 
•  the slope of the production possibilities frontier equals the trade-off of the production of one good or service in terms of the other 
• harm in specializing : If the demand for the good or service you produce decreases, its [rice and your income will decrease 
• law of increasing opportunity cost using best land then better land then worst land 
• market definition influences the number of substitutes 
• elasticity of demand change in q/ change in p 
• demand is perfectly elastic when the value of the price elasticity of demand is negative infinity 
• more substitutes = more elastic 
• elasticity - a measure of how responsive one variable is to a change in another variable 
• negative sign on price elasticity shows negative relationship A up B down 
• A down B down elasticity demand > 1 : elastic 
• elasticity demand <1: inelastic 
•  change in q / 2 / change in P / 2 
• 30/2/200/2 
• midpoint: change in q / mid q x 100 
• q2-q-1/q2+q1/2 x 100 
• 100/1100/2 x 100 
• 1000/4000/2 x100 
• 1000/10000x 100 
• cross-price elasticity : price of one product and the quantity demand of another 
• time determines how elastic or inelastic a product is 
•  whn 2 goods are complements the cross-price elasticity of demand is negative a up b down substitutes a up b up = positive values 
• the lower range of linear demand curve is relatively less elastic 
• more elastic effects me less 
• % change quantity demand < % change price 
• perfectly elastic : elasticity is infinite 
• negative value indicates inferior goods
• income elasticity of demand is a measure of how responsive demand is to a change in consumer income 
• price up quantity up = inelastic
• the intermediate period is the time period in which producers cannot increase their use of economic resources to increase quantity supplied income elasticity of demand - percent change in income 
• the short run is the time period in which at least one input of production is fixed but other inputs can be changed 
• intermediate period - the time period in which producers cannot increase their use of economic resources to increase quantity supplied 
• short run - the time period in which at least one input of production is fixed but other inputs can be changed 
• long - run : the time period in which all inputs production can be changed 
• the immediate period is the time period in which producers cannot increase their use of economic resources to increase quantity supplied 
• income elasticity of demand : a measure of how responsive demand is to a change in consumer income less responsive = inelastic 
• intermediate period : the time period in which producers cannot increase their use of economic resources to increase quantity supplied 
• long run qd - qs 
• income elasticity e.1 normal 
• e,1 inferior 
• b%/a% 
• p>1 - decrease 
• p<1 increase 
• cross price elasticity 
•  

• A useful way to represent the data in a production possibilities schedule is by means of a graph called a production possibilities model 
• oppurtunity cost - the value of the next - best forgone alternative 
• ppf - a graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and tchnology 
• the ppf shows the production combinations that are both attainable and efficient 
• constant oppurtunity cost - a characteristic of production such that the oppurtunity of one good or service, In terms of another, is constant at every level of production of one good or service, In terms of another is constant at every level of production 
• efficient allocation of resources - allocation of resources in such a way that is possible to increase the production ofone good only by decreasing the production of another 
•  

• A useful way to represent the date in a production possibilities schedule is by means of a graph called a production possibilities model 
• oppurtunity cost - the value of the next - best forgone altenative 
• 
  

• relative scarcity - the comparison of the scarcity of one good, service, or resource to that of another 
• rational decision making based on 
• self interest 
• optimization marginal decision making 
• land resource 
•  things found on and under the earth 
• scarcity- the fact that unlimited wants cannot be completely satisfied with limited resources 
• marginal decision making - when you decide to turn off the bedroom light on your way to the kitchen to save money 
• 
  

• relative scarcity - the comparison of the scarcity of one good, service, or resource to that of another 
• rational decision making based on 
• self interest 
• optimization marginal decision making 
• land resource 
•  things found on and under the earth 
• scarcity- the fact that unlimited wants cannot be completely satisfied with limited resources 
• marginal decision making - when you decide to turn off the bedroom light on your way to the kitchen to save money 
• 
  

• relative scarcity - the comparison of the scarcity of one good, service, or resource to that of another 
• rational decision making based on 
• self interest 
• optimization marginal decision making 
• land resource 
•  things found on and under the earth 
• scarcity- the fact that unlimited wants cannot be completely satisfied with limited resources 
• marginal decision making - when you decide to turn off the bedroom light on your way to the kitchen to save money 
• 
  

• relative scarcity - the comparison of the scarcity of one good, service, or resource to that of another 
• rational decision making based on 
• self interest 
• optimization 
• marginal decision making 
• land resource 
• things found on and under the earth 
• scarcity - the fact that unlimited wants cannot be completely satisfied with limited resources 
• marginal decision making - when you decide to turn of the bedroom light on your way to the kitchen to save money 
• allocation : the action or process of allocating or distributing something 
• entrepenurial ability - the talent or ability to combine land, labor, and capital to produce goals and services 
• how we choose to employ the resources that are available to us ultimately determines which goals and services get produced 
• assuming that people are self- interested recognizes that people will make mistakes 
• physical capital - tangible items created to increase productivity 
• resources - anything that is used to produced a good or service whether it is provided by nature or is manufactured 
• land- all natural resources used in production 
• labor - all physical and mental activity devoted to producing goods and services 
•  increasing marginal cost describes the positivitie relationship between the marginal cost associated with the use of a good or a service and quantity produced 
• economics: the study of how individuals and societies allocate scarce resources among many competing uses 
• opportunity cost : the value of the oppurtunity that you give up when you choose one activity instead of another 
• as the amount of an activity increases, its marginal benefit falls and its marginal cost rises