UNIT ONE NOTES

UNIT 1 Notes 

1/5/16

Macroeconomics- The study of the economy as a whole. ·         Inflation ·         International Trade ·         Wages	Microeconomics- The study of individual or specific units of the economy. ·         Supply and Demand ·         Market Structures ·         Business Organizations
Positive Economics- Attempt to describe the world as is, very descriptive, tends to thrive on what is and collects and presents facts.	Normative Economics- An attempt to prescribe how the world should be. “Ought to be” “Should be” (opinion based)
Needs- Basic requirements for survival. (Food, water, shelter and clothing.)	Wants- Desires of citizens.
Goods- Tangible commodities ·         Capital Goods- Items used in the creation of other goods. ·         Consumer Goods- Goods that are intended for final use by the consumer.	Services- work that is performed for someone. Examples; beauty shops, barbershops etc.
Scarcity- most fundamental economic problem that all societies face. How to satisfy unlimited want with limited resources.	Shortage- Quantity wanted is greater that quantity supplied.

Factors of Production

·         Land- natural resources

·         Labour- work force

·         Capital- Human Capital, Physical Capital

·         Entrepreneurship- innovative, risk taker.

1/6/15

·         Factors of Productions- resources required to produce goods & services.

·         Physical Capital- Factories, robots, tools etc.

·         Human Capital- Knowledge, skills, abilities and talent that are gained through education & work experience.

·         Trade- Offs- Alternatives that we give up when we choose one course of action over another.

·         Opportunity Cost- The next best alternative.

·         Production Possibility Graphs (PPG)- it shows alternative ways to use an economy’s resources.

·         4 assumptions of a PPG

1.    Two goods

2.    Fixed resources (land, labour, capital, entrepreneurship)

3.    Fixed technology

4.    Full employment resources

·         Vocabulary

1.    Efficiency- using resources in such a way as to maximize the productions of goods and services.

2.    Allocative Efficiency- The products being produced are the ones most desired by society.

3.    Productive Efficiency- products are being produced in the least costly way and this is any point on the production possibility curve. (PPC)

4.    Underutilization- using fewer resources than an economy is capable of using.

·         3 types of movement that occur within the PPC –

1.    Inside the curve- occurs when resources are unemployed or underemployed.

2.    Along the PPC

3.    Shifts of the PPC- can shift out or in.

1/7/16

·         What causes the PPC/PPF to shift?

1.    Technological Changes

2.    Economic Growth

3.    Change in Resources

4.    Change in the Labour Force

5.    Natural Disasters/ War/ Famine

6.    More Education: Training ( Human Capital)

Change=      

1/14/16

·         Elasticity of Demand- a measure of how consumers react to a change in price.

·         Elastic Demand- demand that is very sensitive to a change in price. (Always > 1)

                                                                        -Product is not a necessity

                                                                        -Available substitutes

·         Inelastic Demand- demand that is not very sensitive to a change in price. (Always< 1) – Product is a necessity

-few or no substitutes

            - People will buy no matter what

·         Unitary Demand- Always= 1

Elastic	Inelastic
Soda	Gas
Steaks	Salt
Candy	Milk
Fur coats	Insulin/ medicine
	Toothpaste

Price Elasticity of Demand (PED)

·         Step 1: Quantity-   New Quantity- Old Quantity/Old Quantity

·         Step 2: Price -   New Price- Old Price/ Old Price

·         Step 3: % change in Quantity Demanded/ % change in Price

·         Total Revenue- total amount of money of a firm receives from selling goods and services.

·         P x Q= Total Revenue (TR)

·         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)

·         Marginal Cost- The cost of producing one or more unit of a good.                           (Old TC/ New TC)

Formulas:

TFC+TVC=TC

AFC+AVC=ATC

TFC/Q=AFC

TVC/Q=AVC

TC/Q=ATC

TFC=AFC x Q

TVC=AVC x Q

1/21/16

Business Cycles

·         Peak- the highest point of real GDP, this is where you have the greatest amount of spending and the lowest amount of unemployment. In this phase inflation becomes a problem.

·         Expansion/Recovery Phase- Real GDP is increasing due to an increase spending & a decrease in unemployment.

·         Contraction/Recession- Real GDP declines for 6 months due to a reduction in spending and increasing unemployment.

·         Trough- lowest point of real GDP, least amount of spending and the highest unemployment.

s                                              Supply and Demand Graph

                                                            PPG (Production  Possibilities Graph)

Business Cycle