Unit 1

• Macroeconomics: Study of the major components of the economy; covers the ups and downs of the economy                                                                                        Ex: inflation, GDP, international trade
• Microeconomics: Study of how households and firms make decisions and how they interact                                                                                                             Ex: supply and demand, market structures

•  Positive Economics: claims that attempts to describe the world as is. It is very descriptive. Basically claims the way the economy actually works Ex: minimum wage laws causes unemployment
• Normative Economics:  claims that attempts to prescribe how the world should be. It is very prescriptive in nature and is opinion based. Basically claims the way the economy should work. Ex: Government should raise the minimum wage

•  Needs: basic requirements for survival                                                                    Ex: food, water, shelter
• Wants:desires of citizens & are broader than your needs

•  Scarcity: is the most fundamental economic problem facing all society.
  It is satisfying unlimited wants with limited resources. -Permanent Ex: water, gold, oil
• Shortage:  Where the quantity demanded is greater than the quantity supplied                     -Temporary
• Goods: Tangible commodities you can buy 

•  Consumer goods: goods that are intended for final use by the consumer
• Capital goods: items used in the creation of other goods                                       ex: factory, machinery, trucks 
• Services: work that is performed for someone else 

                Factors of Production 

1. Land (natural resources)
2. Labor (work force)
3. Capital (human capital, physical capital)

• Human capital: Knowledge and skills: (what you gain through education and experiences)
• Physical Capital: human made objects used to create other goods and services

     4. Entrepreneurship (have to be an innovator and risk taker)

• Tradeoffs: alternatives that we give up when ever we choose one course of action over another
• Opportunity cost: the most desirable alternative given up by making a decision
• Production possibility graphs(PPC or PPF): shows alternative ways to use resources
• Points of the curve:
• -A: is underutilization, is attainable but unefficient; could be because of a decrease in population, recession, war, famine, underemployment, unemployment
• -B: efficient, but producing more guns than butter
• -C: efficient, but producing more butter than guns
• -D: efficient and attainable

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• -X: unattainable; could be because of economic growth, technology, and new resources

• Productive efficiency: producing at the lowest cost and we're allocating resources efficiently and have full employment of resources
• Allocative efficiency: where to produce on the curve

• Production possibilities graphs key assumptions: 

1. Two goods are produced
2. Full employment
3. Fixed resources (land, labor, capital)
4. Fixed state of technology
5. No international trade

• elasticity demand: tells how drastically buyers will cut back or increase their demand for a good when the price rises or falls

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-elastic demand: demand will change greatly given a small change in price

-"wants"

-ex: movie tickets

- E>1

-inelastic demand: your demand for a product will not change regardless of price

-"needs"

-ex: milk, gasoline, medicine (insulin)

- E<1

-unit elastic:

- E=1

• How to find % change in quantity: new quantity-old quantity/old quantity
• How to find % change in price: new price-old price/old price
• How to find PED or price elasticity in demand:  abs(%Change in Quantity/%Change in Price) 
• How to find total revenue: Price x Quantity

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• Equilibrium: the point at which the supply curve and the demand curve intersect; at the point at which they intersect it means the economy is using it efficiently 

• Shortage: QD>QS
• Surplus: QS>QD

• Price ceiling: below equilibrium point on graph; a government imposed minimum on how high you can be charged for a product or service                                                                                Ex: rent control
• Price floor: above equilibrium point on graph; a government imposed minimum on how low a price can be charged for a product or service                                                                              Ex: minimum wage

• Margin: additional income of selling an additional good
• Fixed cost: a cost that does not charge no matter how much is produced 
• Variable cost: cost that does change that fluctuates                                                                    Ex: gas, electricity
• Marginal cost: the cost of producing one more unit of a good 
• Whats the difference between cost and revenue? revenue is what you bring in and cost is what you bring out

• Expansionary (growth): real output in the economy is increasing and the unemployment rate is decreasing
• Peak: where real GDP is at its highest point
• Contractionary (recession): where real output in the economy is decreasing and the unemployment rate is increasing

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• Trough: the lowest point of real GDP