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Unnecessary for survival
Necessary for survival
unlimited wants, limited resources aka scarcity
the best alternative forgone when a choice is made.
Land Resources
All resources supplied from the earth (e.g. water, oil, sunlight)
Labour Resources
All resources supplied by humans (e.g. labour, intellect)
All resources that assist the production of goods + services (e.g. drills, tractors, computers)
Coordination and management of other resources. Ability to combine land, labour and capital to make profit or products.
The study of economic performance as a whole, including inflation, employment, total production and economic growth
Resources are scarce compared to society’s unlimited needs and wants.
What to produce? How to produce? For whom to produce?
Fluctuations in the economy in terms of output and growth measured by changes in Real GDP every quarter.
What fluctuates in the business cycle?
GDP, Inflation, Prices
Consumer Spending, Investment
Income
Supply and Demand
Employment
Profit
Consumer Confidence
Economic Growth
Production
What happens during a peak?
Peaks see unsustainable growth and demand exceeding supply.
What happens during a recession?
Recessions see income cuts.
What happens during a trough?
Fiscal and monetary intervention required to make GDP grow again.
Shows all production possibilities, where each point on the frontier is a way resources can be allocated to producing two different products.
Law of Increasing Opportunity Cost
Every additional unit of production of one good requires sacrificing an increasing amount of production of another good
Households give factors of production for income from firms (DR WISP - demand, rent, wages, interest, and profit).
Households give money to purchase goods and services from firms.
Market value of all finished goods and services produced within a country within a year; Only counts products produced that year that won’t be sold again as part of another product.
A measure of GDP that controls for inflation by measuring different years with the same prices, eg 1950-2015 w/ 2009 prices.
Real GDP / capita
Real GDP / Population
GDP indicates the health, size, growth or decline of an economy, as well as helping understand living standards.
Supply
The amount of a product that a producer is willing/able to sell at a given market price.
Demand
The amount of a product that a consumer is willing/able to buy at a given market price.
Increasing price → Increasing supply
Increasing price → Decreasing demand
QD = QS
QD < QS
QD > QS
1. Change in productive resources
2. Technological advancements
What is the formula for GDP?
Demand shifters
Income, Population, Tastes, Price of Related Goods, Expectations, Expected Future Price
Supply shifters
Technological Innovation, Input Prices, Taxes and Subsidies, Expectations, Entry / Exit of Producers, Changes in Opportunity Costs
Consumer Surplus
What consumers would pay - market price, reflecting consumer benefit
Normal Goods & Inferior Goods
Normal goods: ↑ income → ↑ demand
Inferior goods: ↑ income → ↓ demand
Substitute Products
↑ price → ↑ demand for other good
Complement Products
↑ price → ↓ demand for other good
Movements & Shifts
Movements caused by price, shifts not caused by price
Types of Economic Systems
Traditional, Command, Market, Mixed
Traditional Economy
People follow customs and make what their ancestors made
People make goods the same way their ancestors did
People make things for the community
Examples include Inuit, Australian Aboriginals and Amazon Rainforest communities.
Command Economy
Governments make all economic decisions such as distribution of resources and regulation of prices and wages
Governments decide how/how much to produce
Governments decide who gets what
Examples include communist countries (North Korea, Cuba, Vietnam)
Market Economy
Businesses decide what to make for profit
Businesses decide how/how much to produce
Production for consumers
Pure market economies don’t exist
Mixed Economy
Businesses decide what to produce
Businesses decide how much, but government regulates some industries
Production for consumers
Examples include USA, Canada, England, Japan and others
How do you draw the 5-sector circular flow of income model?
Households, firms, government, financial intermediaries, overseas. Leakages on the left, injections on the right.