fs-20250211181549-754

Study Guide

Supply and Demand

  • Supply: Amount of a resource businesses are willing to provide to the marketplace.

  • Demand: Economic concept relating to a consumer's desire to purchase goods.

  • Quantity Supplied/Demanded: Numbers of goods or services that suppliers will produce and sell at a given market price.

Market Equilibrium

  • Equilibrium: A state in which market supply and demand balance each other, leading to stable prices.

Market Conditions

  • Surplus: An excess of something (e.g., products or money) beyond what is needed.

  • Shortage: A condition where the quantity of a product or service demanded exceeds the quantity supplied at the market price.

GDP (Gross Domestic Product)

  • Definition: Total dollar value of all final goods and services produced in a year.

  • Measurement of Wellbeing: While it measures economic performance, it fails to account for various factors, such as depletion of natural resources and unpaid work (e.g., household chores).

  • Expenditure Approach: Accounts for the sum of all final goods and services purchased in an economy over a set period. Formula: F = C + I + G + (X + M), where:

    • C = Consumer spending

    • I = Investment

    • G = Government spending

    • X = Exports

    • M = Imports

  • Income Approach: Based on the principle that total expenditure in an economy equals total income generated by the production of all goods and services. Formula:

    • Total Income = Consumption + Investment + Government Spending + (X - M)

  • Savings and Taxes: Total income can also be represented as the sum of consumption, savings, and taxes.

Unemployment

  • A person is considered unemployed if they are in the labor force but don't have a job.

  • Unemployment Rate: Formula = (Number of Unemployed / Labor Force) × 100%

Types of Unemployment

  • Frictional Unemployment: Voluntary job transitions or temporary unemployment during job searching.

  • Cyclical Unemployment: Demand-driven joblessness due to economic downturns.

  • Structural Unemployment: Arises from skill or location mismatches in the labor market.

Inflation

  • Definition: A general increase in the prices of goods and services.

  • Causes:

    • Increased production costs associated with materials and labor.

    • Higher consumer demand.

    • Supply shocks (e.g., natural disasters disrupting supply chains).

    • Devaluation of currency.

  • Types of Inflation:

    • Hyperinflation: Extreme currency devaluations.

    • Devaluation: Associated with decreased taxes.

    • Cost-Push Inflation: Caused by rising production costs (e.g., rising oil prices).