Sunday, January 24, 2016
Unit I Notes
1/5/16
the study of economy as a whole (macro being indicating on a large scale)
the study of individual or specific units of the economy (trees
not the forest)
Attempts to describe the world as is Descriptive in nature “What is”, collects and presents facts Attempt to prescribe how world should be “Ought to be” and “should be” (opinion based)
Needs
The basic requirements for survival
I.
Food
IV.
Clothing
Wants
the desires of citizens
Goods
Tangible commodities in either capital or consumer forms
(two types only) Capital goods are items used in the creation of other goods
(machinery and trucks) Consumer goods are intended for the final use by the
consumer
Scarcity
The most fundamental problem that all societies face The attempt to satisfy unlimited wants with limited
resources Most scare resource is oil
Shortage
Quantity demanded > quantity supply (QD> QS)
Factors of Production
The resources required to provide goods and services
I.
Land- the natural
resource
II.
Labor- work force
III.
Capital- human capital
(knowledge, skills, ability, talent, acquired through education and/or
experience) and physical capital (tools, machines, factories, robot)
IV.
Entrepreneurship- risk
taker, innovator
1/6/16
Trades
offs
Alternatives that we give up whenever we choose one course
of action over another
Opportunity cost
The next best alternative Usually left the third, fourth, or even fifth choice
Production Possibilities Curve (PPC)
Production Possibilities Frontier (PPF)
Production Possibilities Graph (PPG)
PPG shows alternative ways to use economic resources
Four Assumptions
I.
Two goods
II.
Fixed resources (land,
labor, capital, entrepreneurship)
III.
Fixed technology
IV.
Full employment of
resources (effective use)
Vocabulary
Efficiency is the using the resources in such a way as to
maximize the production of goods and services Allocative efficiency is the products being produced or the
ones that a society desires Productive efficiency- products are being produced in the
least costly way representing any point on the PPC Underutilization- using fewer resources than an economy is
capable of using
Point B and C:attainable and efficient (on the curve)
Point D: attainable but inefficient; underutilization (outside of
the curve)
Three Types of
Movements in PPG
I.
Inside of the PPG
occurs when resources are unemployed or under employed
II.
Along the PPC (B-C or
C-B)
III.
Increases shifts the
PPC
1/7/16
Production
Causes of PPC/PPF to shift
I.
Advances in Technology
II.
Change in resources
III.
Change in the labor
force
IV.
Economic growth
V.
Natural disaster, war,
or famine
VI.
Increases in levels of
education and/or training (human capital)
Inside (attainable but inefficient) On curve (attainable and efficient) Outside (unattainable)
1/12/16 Quiz covers
Opportunity cost and trade offs Scarcity and shortage PPG function’s Positive vs normative economics Three points of PPG
1/13/16
Elasticity demand
Measure of how consumer react to change in price
Elastic demand
Demand that is very sensitive to a change in price (E>1) Product is not a necessity and there are available substitutes
Inelastic demand
Demand that is not necessary to the change in price
(E<1) Product is a necessity Few or no substitutes People with buy no matter what
Unitary elastic
E=1
Elastic Demand Examples
Soda Steaks Candy Fur coat Gas Insulin and/or medicine Milk Salt Toothpaste
New price-old price/
old price
Step III: PED
% in quantity demand/ %
change in price
Total revenue: total
amount that a firm from sell into goods and service
TR: P(Q)
1/14/16
Fixed cost: a cost that
does not change no matter how much is produced
Ex: rent, mortgage,
insurance, salaries
Variable cost: a cost
that rises or falls depending upon how much is produced
Ex: electricity (based
upon usage)
New tC - Old tC=
Marginal Cost
the cost of producing one more unit of a good
1/15/16
Formulas:
TFC+TVC=tC
AFC+AVC=ATC
TC/Q=ATC
TFC/Q=AFC
TVC/Q=ATC
TFC=AFC(Q)
TVC=AVC(Q)
Marginal revenue must
have previous data
Total fixed cost does
not change
1/21/16
Peak
highest point of real GDP This phrase exhibits the lowest unemployment and the
greatest amount of spending In this phase, inflation become a problem Real GDP is due to an increase in spending and decrease in
unemployment
Recession (Contraction)
This is where real GDP is declining for six months due to a
reduction in spending and increase of unemployment
Trough
The lowest part of real GDP Exhibits highest point of unemployment Least amount of spending
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