Business Cycles

 Peak- is the highest point of the real GDP; greatest amount of spending and lowest amount of unemployment. In this phase inflation becomes a problem

 Expansion- real GDP is increasing due to an inflation of spending and a decrease in unemployment

 Contraction- real GDP declines for 6 months due to a reduction in spending and increase in unemployment

Trough- is lowest point of real GDP; least amount of spending & highest unemployment

Equillibium

Equilibrium- is the point at which the supply curve and the demand curve intersect.  At this point, all resources are being efficiently used.
 
Excess demand- occurs when the quantity demanded is greater than the quantity supplied.  This will result in shortages, where consumers cannot get the quantities of items that they desire.

Excess Supply-when the quantity supplied is greater than the quantity demanded, creates surplus

Price ceiling- creates a shortage and occurs when the government puts a legal limit on how high the price of a product can be.
Excess supply- occurs when the quantity supplied is greater than the quantity demanded.  This will result in a surplus, where producers have inventories they cannot get rid of.
 
Price floor- is the lowest legal price a commodity can be sold at. This creates a surplus and is used by the government to prevent prices from being too low.

Supply and Demand

Cause of Change in Supply

• change in technology
• change in weather
• change in cost of production
• change in number of sellers
• change in taxes or subsidies
• change in expectations

 

Cause of Change in Demand

• change in buyer’s taste (advertisement)
• change in number of buyers (population)
• change in income (normal goods/inferior goods)
• change in price of related goods (complementary/supplementary)

Supply:is the quantities that producers or sellers are willing and able to produce at various places.
Law of Supply:There is a direct relationship between product and quantity supplied.
Demand is the quantities that people are willing and able to buy at various prices.   Law of Demand There is an inverse relationship between price and quality demanded   Normal Goods-increases income; causes an increase in demand   Inferior Goods-Increase in income; causes a fall in demand   Complementary Goods-ex: fish and chips   Supplementary Goods-ex: white bread replaced by wheat bread  Supply and Demand: Gallon of Milk (VIDEO LINK)

Help with Understanding Elasticity Video

Comprehend Elasticity

Elasiticity of Demand, PED and Essential Formulas

Elasticity of Demand- is a measure of how consumers react to a ∆ in price

1.Elastic Demand- demand that is very sensitive to a change in price

• Product is NOT a necessity
• There are available substitute
• Examples of Elastic
  -soda
  -Candy

2. Inelastic Demand- Demand that is not sensitive to change in price

• Product is a necessity
•  Few or no substitutes
• People will buy no matter what
• Examples of Inelastic
  -Gas
  - Salt

3. Unitary Demand E=1

 

Price Elasticity of Demand (PED)

1) Quantity

(New quantity – Old quantity)/Old quantity

2) Price

(New price – Old Price)/Old Price

3) PED

Percentage ∆ in Quantity demanded/Percentage ∆ in Price

Total Revenue: the total amount of money a firm receives from selling goods & services P×Q= TR (price × quantity=total revenue)

Fixed Cost: a cost that does not change no matter how much is produced Ex. Rent, mortgage, insurance, salary

Variable Cost:  a cost that rises and falls depending upon how much is produced Ex. Electricity

Marginal Cost: the cost of producing one more unit of a good

 

Formulas

• TC=TFC+TVC
• ATC=AFC+AVC
• AFC=ATC/Q
• AVC=TVC/Q
• ATC=TC/Q
• TFC=AFCxQ
• TVC=AVCxQ

PPC/PPG

Production Possibilities Graph AKA: PPG- shows alternative ways to use an economy’s resources. (PPC-Curve)
4 Assumptions:

• Two Goods
• Fixed Resources (land, labor, capital & entrepreneurship)
• Fixed Technology
• Full Employment of Resources

Efficiency- using resources in such a way as to maximize the production of goods & services

Allocative Efficiency- products being produced are the ones most desired by society

Productive Efficiency- products are being produced in the least costly way & this means any point on (PPC)

Underutilization- using fewer resources than an economy is capable of using

• C -inside the curve-you are unattainable but inefficient: underutilization
• B & D-on the curve-You are attainable and efficient: it is producing
• E -outside of the curve-Unattainable

What causes the PPC/PPG to shift?

• Technological Changes
• Economic Growth
• Change in Resources
• Change in Labor Force
• Natural Disasters, War, Famine
•  More education & training

∆ (delta) -change

 

 Production Possibilities Graph (PPG)- shows alternative ways to use an economy’s resources. (PPC-Curve)
4 Assumptions:
-Two Goods
-Fixed Resources (land, labor, capital & entrepreneurship)
-Fixed Technology
-Full Employment of Resources

Efficiency- using resources in such a way as to maximize the production of goods & services

Allocative Efficiency- products being produced are the ones most desired by society

Productive Efficiency- products are being produced in the least costly way & this means any point on (PPC)

Underutilization- using fewer resources than an economy is capable of using



 C -inside the curve
You are unattainable but inefficient: underutilizationB & D-on the curve
You are attainable and efficient: it is producing
E -outside of the curve
Unattainable



What causes the PPC/PPG to shift?

Technological Changes
Economic Growth
Change in Resources
Change in Labor Force
Natural Disasters, War, Famine
 More education & training
∆ (delta) -change

Shifting the PPC Video

Shifting the PPC

Intro To Economics

• Ma

Macroeconomics: the study of the economy as a whole

• supply and demand
• international trade
• minimum wage

Microeconomics: the study of individual or specific units of the economy.
Where people make decisions and how their decisions interact.

• supply and demand
• market structure

Positive Economics: attempts to describe the world as is.

• descriptive
• collects and presents facts

Normative Economics:It attempts to prescribe how the world should be.

• Very prescriptive
• Thrives on what ‘ought’ to be done and what ‘should’ be done
• Opinion-based

Needs: Basic requirements for survival

• food
• clothing
• shelter
• water

Wants: Desires of citizens


Goods: A tangible commodity that can be bought, sold, or produced.

• capital goods: items used on the creation of other goods
• consumer goods: goods that are intended for final use of the customers

Services:Work that is performed for someone


Scarcity:The most fundamental economic problem facing all societies.
How to satisfy unlimited wants with limited resources. Always necessitates a choice.

Shortage:Quantity divided is greater than quantity supplied