A. What Is GDP? GDP is an abbreviation for Gross Domestic Product
Gross Domestic Product- the total market value of all final goods and services that is produced within a country's borders in a given year
B. What is GNP? GNP is an abbreviation for Gross National Product
Gross National Product- the total market value of all final goods and services by citizens of that country on its land or any other foreign lands.
C. What's Included in GDP?
(65%) C- Personal Consumption Expenditures
(17%) Ig- Gross Private Domestic Investment
Such as factory equipment, factory equipment maintenance, construction of housing, unsold inventory of products built in a year.
(20%) G- Government Spending
(-2%) Xn- Net Exports (Exports minus Imports)
D. What IS NOT included in GDP?
1. Intermediate Goods- goods that require further processing before they are ready for final use
2. Used or Secondhand Goods- not counted to avoid double counting
3. Purely Finacial Transactions- (stocks and bonds) not counted because it's not a good or service
4. Illegal Activities
5. Unreported Business Activity- (unreported tips)
6. Transfer Payments
a. Public Payments (Social Security, Veterans, Welfare)
b. Private Payments (Scholarship)
7. Non- market Activity (work you perform for yourself, babysitting for parents, etc.)
Thursday, January 28, 2016
Wednesday, January 27, 2016
Unit 2 Introduction (Market Economy)
A. Vocabulary
Circular Flow Diagram- represents the transactions in an economy.
Product Market- the place where good and services are produced by businesses
Factor Market- the place where households sell resources and businesses buy resources.
Firms- an organization that produces goods and services for sale
Household- a person or group of people that share their income. (In addition they share the factors of production with businesses)
Here's an example of a circular flow diagram:
Circular Flow Diagram- represents the transactions in an economy.
Product Market- the place where good and services are produced by businesses
Factor Market- the place where households sell resources and businesses buy resources.
Firms- an organization that produces goods and services for sale
Household- a person or group of people that share their income. (In addition they share the factors of production with businesses)
Here's an example of a circular flow diagram:
Sunday, January 24, 2016
Economics (1/21)
Peak- the highest point of real GDP. It exhibits the greatest amount of spending and the lowest unemployment. In this phase, inflation is a problem.
Expansion- also known as the recovery phase. Real GDP is increasing as a result of spending increasing and unemployment decreasing.
Contraction/ Recession- Real GDP declines for 6 months. In this phase, unemployment increases and spending reduces.
Trough- Lowest point of GDP, includes highest unemployment and least amount of spending.
Expansion- also known as the recovery phase. Real GDP is increasing as a result of spending increasing and unemployment decreasing.
Contraction/ Recession- Real GDP declines for 6 months. In this phase, unemployment increases and spending reduces.
Trough- Lowest point of GDP, includes highest unemployment and least amount of spending.
Total Revenue (Equations Included)
Total Revenue - The total amount of money a firm receives from selling goods and services. PxQ = TR
Fixed Cost - a cost that does not change no matter how much of a good is produced. Ex: Mortgage, rent, salary
Variable Cost - a cost that rises or falls depending upon how much is produced. Ex: electricity depends upon usage
Marginal Cost - the cost of producing one more unit of a good.
Formulas:
TFC + TVC = TC
AFC + AVC = ATC
TFC/Q= AFC
TVC/Q=AVC
TC/Q= ATC
AFC x Q= TFC
AVC x Q= TVC
Fixed Cost - a cost that does not change no matter how much of a good is produced. Ex: Mortgage, rent, salary
Variable Cost - a cost that rises or falls depending upon how much is produced. Ex: electricity depends upon usage
Marginal Cost - the cost of producing one more unit of a good.
Formulas:
TFC + TVC = TC
AFC + AVC = ATC
TFC/Q= AFC
TVC/Q=AVC
TC/Q= ATC
AFC x Q= TFC
AVC x Q= TVC
Elasticity of Demand (a.k.a. Now We Add Math) & Intro to Supply
Elasticity of Demand
A. Elasticity of Demand: a measure of how consumers react to a change in price.
B. Elastic v. Inelastic
Elastic -
Demand that is very sensitive to a change in price.
A product is elastic when it's greater than 1.
Product is not a necessity and there are available substitutes.
Inelastic -
Demand that is not very sensitive to a change in price.
A product is elastic when it is less than 1.
People will buy it no matter what.
C. How to calculate : Price Elasticity of Demand (PED)
Step 1: Calculate the Quantity
Subtract the old quantity from the new quantity and divide it by the old quantity.
Step 2 : Price
Subtract the old price from the new price and divide it by the old price.
Step 3 : PED
Take the percent change in quantity demanded and divide it by the percent change of the price. So the answer of step 1 divided by the answer of step 2.
Supply
Supply is the quantities that producers/sellers are willing and able to produce at various prices.
Supply down = left, supply up = right
A. Elasticity of Demand: a measure of how consumers react to a change in price.
B. Elastic v. Inelastic
Elastic -
Demand that is very sensitive to a change in price.
A product is elastic when it's greater than 1.
Product is not a necessity and there are available substitutes.
Inelastic -
Demand that is not very sensitive to a change in price.
A product is elastic when it is less than 1.
People will buy it no matter what.
C. How to calculate : Price Elasticity of Demand (PED)
Step 1: Calculate the Quantity
Subtract the old quantity from the new quantity and divide it by the old quantity.
Step 2 : Price
Subtract the old price from the new price and divide it by the old price.
Step 3 : PED
Take the percent change in quantity demanded and divide it by the percent change of the price. So the answer of step 1 divided by the answer of step 2.
Supply
Supply is the quantities that producers/sellers are willing and able to produce at various prices.
Supply down = left, supply up = right
The Law of Supply: There is a direct relationship between price and quantity supplied. Change in price causes a "change in quantity supplied".
What causes a "change in supply"?
1. A change in expectations
2. Change in weather
3. Change in the number of suppliers
4. Change in costs of production
5. Change in taxes or subsidies
6. Change in technology
PPC & PPG
A. Trade-offs: Alternatives that we give up when we chosen course of action over the other.
B. Opportunity cost: The next possible alternative.
C. Production possibilities curve (PPC): Shows alternative ways to use an economies resources.
4 Assumptions of a (PPG)
1. Two goods
2. Fixed resources
3. Fixed technology
4. Full employment of resources
D. Efficiency: Using resources in such a way as to maximize the production of goods and services.
· Allocative efficiency: Products being produced are the ones most desired by society
· Productive efficiency: Products are being produced in the least costly way (any point in the PPC)
Underutilization: Using fewer resources than an economy is capable of using.
Points B & C would be obtainable and efficient, while Point F would be attainable yet inefficient and Point G would be unattainable and inefficient,
E. Three Types of movement that occur within the PPC
1. Inside of the curve- it occurs when resources are unemployed or under employed
2. Along the PPC
3. Shifts of the PPC
F. What causes the PPC/PPF to shift?
Technological changes
Economic growth
∆ in resources
∆ in the labor force
Natural disaster/ War/ Famine
More education and training ( human capital)
G. Demand: quantities that people are willing and able to buy at various prices
The Law of Demand: there is an inverse relationship between price and quantity demanded
H. What causes a "change" in quantity demand ?" - change in price
What causes a "change in demand?"
∆ in buyer's taste
∆ in number of buyers
∆ in income: Inferior goods, Normal goods
∆ in price of related goods: Complementary goods, Substitute goods
∆ in expectations (future)
B. Opportunity cost: The next possible alternative.
C. Production possibilities curve (PPC): Shows alternative ways to use an economies resources.
4 Assumptions of a (PPG)
1. Two goods
2. Fixed resources
3. Fixed technology
4. Full employment of resources
D. Efficiency: Using resources in such a way as to maximize the production of goods and services.
· Allocative efficiency: Products being produced are the ones most desired by society
· Productive efficiency: Products are being produced in the least costly way (any point in the PPC)
Underutilization: Using fewer resources than an economy is capable of using.
Points B & C would be obtainable and efficient, while Point F would be attainable yet inefficient and Point G would be unattainable and inefficient,E. Three Types of movement that occur within the PPC
1. Inside of the curve- it occurs when resources are unemployed or under employed
2. Along the PPC
3. Shifts of the PPC
F. What causes the PPC/PPF to shift?
Technological changes
Economic growth
∆ in resources
∆ in the labor force
Natural disaster/ War/ Famine
More education and training ( human capital)
G. Demand: quantities that people are willing and able to buy at various prices
The Law of Demand: there is an inverse relationship between price and quantity demanded
H. What causes a "change" in quantity demand ?" - change in price
What causes a "change in demand?"
∆ in buyer's taste
∆ in number of buyers
∆ in income: Inferior goods, Normal goods
∆ in price of related goods: Complementary goods, Substitute goods
∆ in expectations (future)
Into to Macro
A, Macroeconomics- study of economy as a whole
International trade
wage laws
inflation
B. Microeconomics- study of individual or specific units of the economy.
Supply and demand
market structure
Business organizations.
C. Positive economics- attempts to describe the world as is. very descriptive.
Collects: presents facts
“what is”
D. Normative Economics- attempts to prescribe how the world should be. Prescribe in nature.
“Ought to be”
“should be” (opinion based)
E. Needs- Basic requirement for survival
Food
water
Shelter
Clothing
F. Wants- Desires of Citizens
G. Goods – Tangible commodities
Capital goods ( used in creation of other goods)
Consumer goods ( intended for final use by consumer)
Services- work that is preformed for someone
Scarcity – Not fundamental economic problem that all societies face.
Shortage -quantity demanded is greater than quality supply
Factor of Production
Land-natural resources
Labor- work force
Capital- a) human ( skills) b) physical (tools machinery factory.
Entrepreneurship- Innovative and risk taker.
International trade
wage laws
inflation
B. Microeconomics- study of individual or specific units of the economy.
Supply and demand
market structure
Business organizations.
C. Positive economics- attempts to describe the world as is. very descriptive.
Collects: presents facts
“what is”
D. Normative Economics- attempts to prescribe how the world should be. Prescribe in nature.
“Ought to be”
“should be” (opinion based)
E. Needs- Basic requirement for survival
Food
water
Shelter
Clothing
F. Wants- Desires of Citizens
G. Goods – Tangible commodities
Capital goods ( used in creation of other goods)
Consumer goods ( intended for final use by consumer)
Services- work that is preformed for someone
Scarcity – Not fundamental economic problem that all societies face.
Shortage -quantity demanded is greater than quality supply
Factor of Production
Land-natural resources
Labor- work force
Capital- a) human ( skills) b) physical (tools machinery factory.
Entrepreneurship- Innovative and risk taker.
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