Econ

scarcity

exists where we desire more than what we can have

Tradeoff

You must give something up when we make a choice

opportunity cost

value of the next best option when you make a choice

Example: Watching GOT instead of Studying

resources

factors of production; basic elements of goods and services

Labor

people who do the work

Human Capital

knowledge to do the job

Physical Capital

the tool needed for a job

Rational Decision

benefit the decision maker; weighs all marginal costs and marginal benifits

Marginal Benefit

the area beyond where we are now and the effects of taking another step

example: more preparedness when you study for 1 more hour

Production Possibilities Frotier

Helps a country/company determine their opportunity costs in production of 2 goods

3 Economic Decisions

1. What should be produced? (Choice & Tradeoff)

2. How should it be produced? (Resources)

3. For whom should it be produced? (Who get the supply)

Society’s Economic Goals

1. Economic Growth

2. Efficency

3. Equity

4. Economic Security

5. Economic Freedom

Net Benefit

Benefit of the Choice ($) - The Cost of the Choice

Bounded rationality

choices that are "good enough" rather than optimal, due to cognitive limitations and time constraints

Supply’s POV

Seller and Producer

Law of Supply

As price increases quantity supplied increases (Direct Relationship)

POV of Demand

Buyers and Consumers

Law of Demand

Price increace causes quantity to decrease (Indirect Relationship)

Change in Demand

The curve is picked up and moved

Change in Quantity Demanded

movment along current curve

Shifters of Demand

1. Taste

2. Price related of related goods

3. Income

4. Expectations

5. number of buyers

Shifters of Supply

1. Cost of Input

2. Gov. Policies

3. Tech

4. Number of Firms

5. Natural Disasters

6. Expectations

Shortage

excess demand

Surplus

excess supply

Command

Government oversees production and establishes wages

ex: North Korea

Traditional

Everyone has a role

ex: Amish Communites

Market

Decisions made by consumer and business owner

Monopoly

one seller market, seller has power, no innovation

Oligopoly

few sellers and some buyers, mostly power with seller, more innovation

Monopolist Competition

Many sellers with similar products, buyers have most power, brand loyalty, innovation

Perfect Competition

Sellers with the same product, buyers have all the power, A LOT of Innovation

Inflation

A rise in the price level of goods and the dollar depreciates in value

Consumer Price Index (CPI)

a measure of the overall price level faced by a typical consumer

Public Goods

goods/services that can be consumed by a group of people and cannot be prevented from using it

Private Good

A good that can be used by only one person at a time

Externality

affect felt beyond those whose decisions caused the effect

For the economy described by the production possibilities curve above, which of the following is true?

The economy cannot produce at point X using currently available resources and technology

The United States market for apples is in equilibrium at E1, where 75 units are sold at a price of $15 per unit. If consumers' per capita disposable income decreases, the equilibrium price and quantity of apples sold can be which of the following?

$10 | 50

Which of the following economic policies is likely to result in the greatest reduction in aggregate demand?

A $5 billion decrease in government purchases accompanied by a $5 billion increase in personal income taxes

Which of the following would increase the demand for workers in the short run?

An increase in the price of the product

Which of the following would shift the supply curve for gasoline rightward?

A decrease in the price of a resource used to produce gasoline, such as crude oil

Oil is used by many firms for production. Political instability in oil-producing countries has decreased the oil supply and increased the price of a barrel of oil.

As a result, the short-run aggregate supply curve would:

Shift to the left

Which of the following is an example of a tertiary economic activity?

Development of ecotourism in Costa Rica

Primary economic activities include which of the following?

Mining and mineral extraction

In a market characterized by pure monopoly control, which of the following is a limit on the power of monopoly?

the elasticity of the demand curve

Gross domestic product (GDP) is the sum of:

Personal consumption, gross private investment, government spending, and net exports

The required reserves ratio for banks is set by who?

the Fed

Which of the following is an example of a countercyclical monetary policy?

reducing interest rates to stimulate economic activity

Over a 12-month period the purchasing power of the United States dollar dropped by 10 percent and interest rates increased from 5 percent to 15 percent. This is an example of:

Inflation