• 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 
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