Transcript Fundamental Topics

FUNDAMENTAL TOPICS
FOP- Land, Labor, Capital & Entrepreneurship
Scarcity- issue all societies deal with
Use a Price system to allocate resources
Public Goods- Schools, roads, fire, police, parks, national defense
Human Capital: Training for employees, schooling; example- college or on the
job training
Capital Investments: Investing in technology, equipment, machinery
Command Economy- run by the government (Communism)
Examples- Cuba, North Korea
Market- based on private ownership, prices determine distribution of
goods/services
Examples- U.S., Australia
Mixed- mix of both, private ownership but government services also provided
(roads, fire, police)
Examples- India, Norway
PRODUCTION POSSIBILITIES CURVE
MARGINALISM
• comparing the additional costs with additional benefits
• Law of Diminishing Marginal Utility
• Marginal utility is greatest with the first unit consumed.
• After that, each unit consumed produces less satisfaction.
MICRO TOPICS
• Demand- price and demand move in opposite directions, INVERSE
relationship
P
D
• Supply- price and supply move in the same direction
P
S
P
S
CHANGE IN QTY SUPPLIED
• change in price causes movement along the supply curve
IRDL
Increase, Right, Decrease, Left
SHIFTS (IRDL)
Demand
2
3
1
Supply
3
1
2
PRICE FLOOR/ CEILING
Price Floor (above the EQ)
Lowest legal price
Causes surpluses
Example: Minimum Wage
Price Ceiling (below the EQ)
Highest legal price
Causes shortages
Gas prices in the 1970s
MARKET STRUCTURES
Pure Competition- all the same products, agricultural (eggs)
Monopolistic Competition- lots of businesses, branding is important (shampoo,
shoes, jeans)
Oligopoly- few large firms (car manufacturing, drink industry)
Monopoly- one company has total control (patent
Natural Monopoly- (utilities)
ELASTICITY/ INELASTICITY
YES = ELASTIC NO= INELASTIC
1.Can the Purchase be delayed?
If consumers can’t postpone purchase it will be inelastic – ex. Toilet paper, eggs,
milk
People may react differently if they can buy the items elsewhere for cheaper – they
could delay buying them
2. Are Adequate Substitutes Available?
If adequate substitutes are available, consumers can take adv. of the best price –
this makes demand elastic
3. Does the Purchase use a large portion of income?
If the amount of income used is large = elastic demand – ex – computers, cars,
vacations
EXAMPLES
Elastic – Flat screen TV, New cars, expensive items, CDs,
designer clothes
Inelastic – milk, diapers, gas, tobacco, insulin, prescription
drugs
P
Inelastic – steep
slope – more
vertical
Q
Copy the graphs
Elastic – gradual slope
– more horizontal
P
Q
MACRO TOPICS
GDP
total market value of all goods and services
produced in a nation over a specific
period of time, usually a year
Formula for calculating GDP:
GDP=C+I+G+Xn
INFLATION
• CPI = cost of today’s market basket
Cost of market basket in previous year
X 100
MONETARY POLICY
Conducted by the FED
Tools: Reserve Requirement (banks), Discount Rate (interest rate on loans),
Open Market Operations (savings bonds)
Speed up the Economy: Lower the reserve req. and discount rate; buy Bonds
Slow down the Economy: Raise the reserve req. and discount rate; sell Bonds
FISCAL POLICY
Conducted by Congress
Tools: taxes and gov’t spending
Speed up the Economy: lower taxes, increase spending
Slow down the Economy: raise taxes, decrease spending
UNEMPLOYMENT
Structural- skill sets are out dated or not educated enough
Frictional- waiting for something better
Seasonal- lifeguard, snow plow driver
Cyclical- flows with the ups and downs of the business cycle
TERMS
Inflation- general rise in prices
Stagflation- inflation at the same time as a stagnant economy
Recession- economic downturn
Depression- recession that last a very long time
National debt- money owed by the national gov’t
Deficit- gov’t spends more than it takes in a year
Surplus- gov’t saves more than it spends in a year
INTERNATIONAL TOPICS
ABSOLUTE ADVANTAGE
Able to produce more of a good or service than another country
Corn
Soybeans
U.S.
75
100
Russia
60
40
COMPARATIVE ADVANTAGE
Able to produce a good or service at a lower opportunity cost than another
nation can
Put what you are looking for on BOTTOM – find ratio for each country
Corn
Soybeans
U.S.
75
100
Russia
60
40
EXCHANGE RATES
Price of one nation’s currency in relation to another nation’s
Determined by the demand for each countries exports at any given time
Make sure to look at each column to see which currency is which
Euro
U.S.
Year
Value of 1 euro in U.S.
Dollars
Value of $1 in euros
2006
1.25
.79
2007
1.42
.70
VOCAB TO KNOW
Tariff- tax on imported good
Embargo- stopping trade with a country
Quota- limit on amount of imports that can come in from a country
Standards- Regulation to keep consumers safe
No Lead Paint!!!!!
Export Subsidy- gov’t aid to a domestic company
Appreciation- dollar is strong
Depreciation- dollar is weak
How will this affect our imports and exports?
PERSONAL FINANCE
TOPICS
Investment types: Look at the pyramid in you notes to see about risk/return
Taxes:
Progressive- income (more you make, more tax you pay)
Proportional: Social Security (6.2%)
Regressive: Sales (Hurts low income and not rich)
Know the affects of Inflation
Credit Worthiness