NCEA L2 Economics cheat sheet

NCEA Level 2 Economics - Core Concepts and Skills

• Opportunity cost is the value of the next best alternative forgone when a choice is made; it exists because resources are scarce relative to wants.

• The circular flow model links households (supply factors of production, demand goods and services) with firms (demand factors, supply goods and services) through factor and product markets, plus government, financial and overseas sectors.

• Production possibility frontier (PPF): points on the curve are productively efficient, points inside are inefficient, points beyond are unattainable; the curve shifts outward with more or better resources or technology.

• Law of demand: ceteris paribus, quantity demanded falls as price rises. Demand curve shifts with income, tastes, prices of substitutes/complements, expectations and population - not with the good's own price.

• Law of supply: ceteris paribus, quantity supplied rises as price rises. Supply curve shifts with input costs, technology, taxes/subsidies, weather and number of sellers.

• Market equilibrium occurs where quantity demanded equals quantity supplied; a surplus pushes price down, a shortage pushes price up toward equilibrium.

• Price elasticity of demand = % change in quantity demanded ÷ % change in price; demand is elastic when the value exceeds 1, inelastic when below 1.

• Real GDP measures the value of output adjusted for inflation; GDP per capita divides real GDP by population and is a rough proxy for living standards but ignores distribution, leisure and environmental effects.

• Economic growth is an increase in real GDP over time; inflation is a sustained rise in the general price level, commonly measured by the consumers price index (CPI).