UNIT 1: business cycle & price ceiling/floor

• Equilibrium- is the point at which the supply curve & demand curve intersect:

• excess demand- when quantity demand is greater than quality supplied. results in shortage.
• shortage- consumers cannot get enough of the quantities they desire.
• price ceiling- creates a shortage. occurs when the government puts a legal limit on how high the price of a product can be.

• excess supply- supply is greater than demand
• price floor- lowest legal price something can be sold for. prevents prices from becoming too low. 
• business cycle:
• 1 cycle is from trough to trough
• average cycle is 5-7 years
• recessions last about 14 months
• peaks and troughs are meaningless because we usually don't notice until it's over 
• trough is the end of a recession
• if the recession takes more than 10 of the CPP, than it is a depression

UNIT 1: what is elasticity of demand? 

Vocab

• elasticity of demand- measure of how consumers react to a change in price 
• elastic demand- demand that is very sensitive to a change in price. product is not a necessity. there are available substitutions. it is always greater than 1 
• inelastic demand- demand that is not very sensitive to a change in price. product is a necessity. few or no substitutions. less than 1 
• unitary elastic- equal to 1
• total revenue- total amount of money a company receives from selling services.
• marginal revenue- additional income from selling one more unit of a good
• fixed cost- cost that does not change no matter how much of a product is produced. 
• variable cost- cost that rises or falls depending upon how much is produced 

formulas

video on how to use formulas

• TC=TVC+TFC
• ATC=AFC+AVC
• AFC=TFC/Q
• AVC=TVC/Q
• ATC=TC/Q
• TFC=AFC*Q
• TVC=AVC*Q
• MC=NEW TC - OLD TC

UNIT 1: all about the PPC

The 3 points within a ppc

video on ppc

 

• points A and B are attainable and efficient
• point D is attainable and inefficient. this can be caused by: under utilization, unemployment, recession, war, famine, etc 
• point C is unattainable using current resources. technology and economic growth can make this attainable. 

Three types of movements on the ppg: 

1.    

shifts of the ppc

2.    

along the ppc

3.    

inside the ppc

What are the four key assumptions? 

1.     can only produce 2 goods at once

2.     full employment 

3.     fixed resources 

4.     fixed technology 

law of increasing opportunity cost- when the resources are shifted from making one good or service to another; the cost of producing a second item increases. 

what are the two types of efficiency?

1.     productive- products are being produced in the least costly way; this is any point on the ppc

2.     allocative-the products being produced are the ones most desired by society; this optimal point on the ppc depends on the desires of the society 

UNIT 1: Intro to econ.

Four factors of production:
this podcast explains the factors of production!!

1. land-

• natural resources

2. labor-

• work exerted 

3.capitol-

•  human capitol is when people acquire skills and knowledge through experience and education
•  physical capitol- money, tools, buildings, machinery

4. entrepreneurship- 

• involves risk taking
• involves being innovative
• takes 3 other factors to promote their business

Vocab:

• trade-off- alternative that we sacrifice when we make a decision
• opportunity cost- next best alternative
• guns or butter- refers to trade-offs that a country faces when choosing whether to produce more or less of military goods or consumer goods
• thinking at the margin- deciding whether to add or subtract one additional unit of some resource
• production possibilities graph/curve/frontier- shows alternative ways to use an economy's resources
• efficiency- using resources in such a way to maximize the production of goods and services. increases profits
• under-utilization- opposite of efficiency. using fewer resources than an economy is capable of using. leads to decreased profits

Basic concepts of economics:

• macroeconomics- study of the economy as a whole. everything.
• microeconomics- study of individual or specific units of the economy. supply and demand.
• positive vs. normative economics- positive is claims that attempt to describe the world as it is; usually descriptive and fact based. Normative is claims that attempt to prescribe how the world should be; usually opinion based.
• needs vs. wants- needs are basic requirements for survival. wants are desires.
• scarcity vs shortage- scarcity is the fundamental economic problem that all societies face. how to satisfy unlimited wants with limited resources. shortage is when the quantity demanded exceeds the quantity supplied.
• goods vs. services- goods are tangible commodities capitol goods are items used in the creation of other goods. consumer goods are intended for final use by the consumer. services are work that is done for someone (ex: doctor, teacher, etc)