Unit 5 April 24

• Supply side economics or Reaganomics
• stimulate production or supply to spar output
• cut taxes and government regulations to increase incentives for business and individuals 
• business invest and individuals
• business invest and expand creating jobs 
• people work, save and spend more
• Laffer curve- depicts a theoretical relationship between tax rates and tax revenue
• Criticisms of the laffer curve

1. Imperial evidence suggest that the impact of tax rates on incentives to work save and invest are small
2. tax cuts also increase demand which can fuel inflation and demand impacts may exceed supply impact
3. where the economy is actually located on the laffer curve is difficult to determine

Unit 5 April 20

• Inflation- rise in the general level of prices
• Deflation- general decline in the economies price level 
• Disinflation - Reduction in the inflation rate from year to year
• Hyperinflation- rapid rise in the price level (extremely high rate of inflation)

Unit 5 March 4

Phillips curve

• An inverse relationship between unemployment and inflation 
• increase in AD will cause price level and real output to increase which increases inflation and reduces unemployment 
• each point on the Phillips curve. corresponds to a different level of output
• since wages are sticky, inflation changes moves the point on the SRPC
• if inflation persists and the expected rate of inflation rises then the entire SRPC moves upward
• Stagflation- when inflation and unemployment rise simultaneously which results in an increase in input cost (Philips Curve will shift outward)
• Supply Shocks- a sudden large increase in resource cost
• if inflation expectations drop due to new tech or efficiency then the SRPC will move downward
• in the long run Phillips curve occurs at the natural rate of unemployment 
• Represented by a vertical line 
• there is no trade off between unemployment and inflation in the longrun
• because the economy produces at the full employment level
• it will only shift if LRAS shifts 
• increase in Un will shift LRPC ->
• decrease in Un will shift LRPC <-
• Natural rate of employment rate of unemployment is equal to frictional, structural, seasonal. The major LRPC assumption is that more worker benefits create higher natural rates, few worker benefits create lower natural rates
• Misery index- Combination of unemployment and inflation in any given year

• single digit misery is good    

Unit 7 May 10

Foreign Exchange 
-buying and selling of currency
-Any transaction that occurs in the balance of payments necessities foreign exchange 
-the exchange rate is determined in the foreign currency markets

Changes in Exchange Rates
-exchange rates are a function of the supply and demand for currency

Exchange Rate Determinants 
-consumer taste
-relative work
-relative price level
-speculation

Exports and Imports
-appreciation of dollar causes price of goods to go up; reducing exports and increasing imports
-depreciation of dollar causes price of goods to be cheaper; increasing exports and reducing imports


Specialization
-Individuals and countries can be made better off if they will provide in what they can have a comparative advantage and then trade with others for whatever else absolute advantage
-The producer that can produce the most output or requires that least amount of inputs (resources)
Comparative Advantage
-The producer with the lowest opportunity cost
-countries should trade if they have a lower opportunity cost
-an output problem presents the data as products produced given a set of resources
-an input problem presents the data as mount of resources needed to produce a fixed amount of output
-When identifying absolute advantage input problems change the scenario from who can produce the most to who can produce a given product with the least amount of resources 

Unit 7 May 9

Balance of Trade 
goods(exports)+ Goods(imports)

Balance of Goods: Services 
goods(exports)+service(exports) -- goods(imports)+service(imports)

Current Account
Balance of Goods: Services(#2) + Net Investments + Net Transfers 

Capital Account 
investments
stocks+bonds

Official Reserves 
current account(+,-)  + capital account (-,+) = 0 theoretically

Unit 7 May 8

Balance of Payments
-measure of money and the rest of the world
               -inflows are credit
               -outflows are referred to as debit 
3 accounts
-current account
-capital/financial account
-official reserves account

Current Account
Balance of Trade or Net Exports
-exports of goods and services-imports of goods and services
-exports are credit
-imports are debit
Net Foreign Income
-income earned by US owned foreign assets-Income paid to foreign held US assets
Net Transfers
foreign aide---> a debit to the current account 

Capital/ Financial Account
-the balance of capital ownership 
-includes the purchase of both real and financial assets
-Direct Investment in the united States is a credit to the capital account
ex: Toyota factory in San Antonio
-Direct Investment by US firms/Individuals in a foreign country are debits to the capital account 
ex: The intel factory in San Jose, Costa Rica 
-Purchase of foreign financial assets represents a credit to the capital account 
- the current account and the capital account should zero each other out 
-That is...if the current account has a negative balance(deficit) the capital account should have a positive balance(surplus) 


Official Reserves
-the foreign currency holdings of the US FED 
-when there is a balance of payments surplus the FED accumulates foreign currency and debits the balance of payments
-when there is a balance of payments deficit the FED depletes its reserves of foreign currency and credits the balance of payments
-The official Reserves zero out the balance of payments 

Video assignment

Unit 4 April 4

• Loadable Fund Market
• is and interest rate of 50% good or bad?
• Bad for borrowers but good for lenders
• Loadable funds market is the private sector supply and demand for loans 
• This market brings together those who want to borrow 
• this market shows the effect on real interest rate 
• Demand- Inverse relationship between real interest and quantity loans supplied 
• this is not the same as the money market 

Unit 4 April 3

• Tools of Monetary policy and 3 sifters of money supply 
• reserve requirement 
• open market operation
• discount rate 
• Reserve requirement- the dollar amount that must be kept back 
• the FED sets the amount that banks must hold 
• if there is a recession the FED has to decrease the reserve ratio
• if there is an inflation the FED has to increase the reserve ratio
• Open Market Operation- when the FED buys or sells government bonds 
• this is the most important and widely used monetary policy 
• if the fed buys bonds-it takes bonds out of the economy and replaces them with money.
• if the fed sells- bond it takes money and gives the securities to investors 
• Discount rate- the interest rate that the fed changes commercial banks for short term loans
• Federal Funds Rate- The interest rate that banks charge one another for overnight loans 
• prime rate- the interest rate that banks charge their most credit worthy customers 

Unit 4 March 27

• Money Creation Formula
• A single Bank can create money by the amount of its excess reserves 
• the banking system as a whole can create money by a multiple of the excess reserves 
• MM x ER = Expansion of Money 
• Money Multiplier = 1/RR
• New vs. Existing money 
• if the initial deposit in a bank comes from the FED or bank purchase of a bond or other money out of circulation, the deposit immediately increases the money supply 
• the deposit then leads to further expansion of the money supply through the money creation process 
• total change in MS if initial deposit is new money= deposit + money created by banking system
• if a deposit in a bank is existing money, depositing the amount does not change the MS immediately because it is already counted 
• existing currency deposited into a checking account changes only the composition of the money supply from coin/paper money to checking account deposit
• total change in MS if deposits is existing money = banking system created money only

Unit 4 March 22

Bond vs. Stocks

• Bonds are loans or IOU's that represent debt that the government or a corporation must repay back to an investor 
• if a corporation issues and then sells a bond, its a liability, for the buyer its an asset
• if nominal interest rate decreases the value of a bond will increase 
• if the nominal interest rate increases, value of a bond decreases 
• stock owners can earn a profit in two ways 
• dividends, which are portions of a corporation's profit, are paid out to stockholders
• a capital gain is earned when a stockholder sells stock for more than he/she paid for it 
• a stockholder that sells stock at a lower price than the purchase price suffers a capital loss
• Money Market
• Demand for money has an inverse relationship between nominal interest rates and the quantity of money demand 
• when quantity demand decrease when interest rates increase 
• quantity demand increases when interest rate decrease
• money demand sifters
• change in price level 
• change in income 
• change in taxation that affects investment 
• How do banks make money 
• Fractional reserve 
• demand deposits are created through the fractional reserve system
• the process in which banks hold a small portion of their deposits in their reserve and they loan out excess 
• banks keep cash on hand ( Required Reserve ) to meet depositors needs
• banks must keep reserve deposit in the vault or at their district fed
• total reserve is equal to 
• required reserves plus excess reserves 
• banks can only lend out their excess reserves

Unit 4 March 20

• The Barter System- Goods and services are traded directly. There is no money exchanged
• Money- anything that is generally accepted in payment for goods and services 
• not the same as wealth or income 
• wealth- the total collection of assets that store value 
• Income- a flow of earnings per unit or time 
• 3 things money can be used as
• Medium of  Exchange 
• determines value 
• Unit of account 
• Comparing cost of price
• Store of Value
• how well does me money hold
• 3 types of money
• Representative
• Represents something of value
• IOU's
• Commodity
• It has value within itself
• salt gold
• Fiat
• It is money because the government says so
• paper money, coins
• Characteristic of money 
• Durability- money is durable
• Probability- you can carry it any where
• Uniformity
• Divisibility- able to be divided
• Limited supply 
• Acceptability
• liquidity- easy to convert to cash
• 3 types of money 
• M1( high liquidity )- Coins, Currency, and Checkable deposits 
• M2 ( Medium liquidity )- M1 plus savings deposits, time deposits, and mutual funds below $100K
• M3( Low liquidity )- M2 plus time deposits above $100K

Unit 4 March 21

Purpose of financial Institution

• Store money
• save money
• through savings accounts 
• checking accounts 
• certificate of deposits 
• money market amount 
• loan money 
• interest ( How banks make money )- price paid for the use borrowed money 
• Principal the amount you borrow 

Types of financial Intermediates

• Commercial Bank 
• Savings and loss Institution
• Credit Unions 
• Mutual Fund Companies
• Finance Companies
• assets- anything of monetary value owned by a person or business 
• Financial assets- a paper claim that entitles the buyer to future income from the seller  
• Physical Assets- a claim on a tangible object 
• Liability- a requirement to pay in the future ( Usually with interest )
• there 5 major financial assets: loans stack, bonds, loans backed securities, and banks deposits 
• the time value of money- a dollar is worth more today than it is tomorrow. you are losing money every second you are not investing it 
• present value vs. future value
• FV= future value, PV= Present Value, i= Nominal interest rate, t=time 
• future value- if you invest money to someone, it will compound according to the following equation: FV=PV(1+i)^t
• Present Value- the amount of money i need to invest now, in order to get some amount (FV is known) in future. PV=(FV/1+i)^n
• Simple Interest Formula
• V=(1+r)^n*P
• Compound Interest Formula
• V= (1+r/k)^nk*P

Unit 3 March 6

• Fiscal policy 
• Changes in spending 
• 2 tools of fiscal policy 
• taxes- government can increase or decrease takes 
• spending- government can increase or decrease 
• fiscal policy is enacted to promote our nations economic goals: full employment, price stability, economic growth
• Deficits, surplus and debt
• balanced budget 
• revenues = expenditures
• Budget deficit
• revenues < expenditures
• Budget surplus
• Revenues > expenditures
• Government must borrow money when its runs a budget deficit 
• individuals
• Corporations
• Financial institutions
• foreign entities or foreign government 
• Fiscal policy two options 
• Discretionary fiscal policy ( Congress )
• Expansionary fiscal policy- think deficit
• Contractionary fiscal policy- Surplus
• Non-Discretionary fiscal policy ( no action )
• Three types of taxes
• Progressive tax- takes a larger percent from higher income group
• Proportional taxes ( flat rate )-takes the same percent of income from all income groups
• Regressive taxes- takes a longer percentage from low income groups
• Contractionary fiscal policy ( the brake )
• law that reduce inflation, decrease GDP ( close a inflationary GDP )
• Decrease government spending 
• tax increase 
• combination of the two 
• Expansionary fiscal policy ( the gas )
• laws that reduce unemployment and increase GDP ( close a recessionary gap ) 
• increase government spending 
• decrease taxes on consumer
• combination of the two 
• Automatic or built in stabilizers 
• anything that increase the government budget deficit during a recession and increase its budget surplus during inflation without requiring explicit action by policymakers 
• Transfer payment 
• Welfare checks
• food stamps
• unemployment checks
• corporate dividends
• social security 
• veterans benefits 
  

Unit 3 February 29

• Classical School 
• Trickle down theory
• help the rich first and then everyone else 
• in the LR, the economy will balance at full employment output 
• the invisible hand 
• Keynesian School
• AD is the key, not AS
• in the LR, we are dead 
• leaks cause recessions
• savings cause recession 

Unit 3 February 27

• Reason why prices tend to be Sticky or inflexible in a demand direction
• Fear of price war
• Wage control 
• Menu cost
• Moral effort and productivity 
• Range 1 ( Horizontal Range )
• output is low relative to the economies fully outpt
• Unemployment increases and so does GDPr
• Range 2 ( Intermediate Range )
• output expands as spending increases 
• Range 3 ( Vertical/ Classical range )
• In the long run the aggregate supply curve is vertical, because the only effect of increase of AD when we are already at full employment an increase in the price level 
• Firms can respond to increase in demand by increasing output 

Unit 3 February 24

• The spending multiplier effect
• An initial change in spending ( C, Ig, Xn ) causes a larger change in aggregate spending or aggregate demand
• Multiplier = Change in AD/ Change in spending 
• Multiplier = Change in AD/ Change in C, Ig or Xn
• Why does this happen 
• Expenditure and income flow continously which sets off a spending increase in the economy 
• Calculating the spending multiplier 
• The spending multiplier can be calculated from the MPC or MPS
• Multiplier = 1/1-MPC or 1/MPS
• Multipliers are ( + ) when there is an increase in spending and ( - ) when there is an decrease 
• When government taxes, and the multiplier works in reverse 
• because now is leaving the circular flow 
• Tax multiplier ( its negative )
• -MPC/1-MPC or -MPC/MPS
• if there is a tax cut, then the multiplier is +, because there is now more money in the circular flow 

Unit 3 February 23

• Consumption and Savings
• Household Spending 
• The ability to consume is constrained by 
• The amount of disposable income 
• The propensity to save 
• Do households consume if DI = 0
• Autonomous Consumption
• Dissavings 
• APC = C/DI = % DI that is spent 
• Savings
• Household NOT spending 
• the ability to save is constrained by
• The amount of disposable income 
• The propensity to Consume 
• Do households save if DI = 0
• No
• APS = S/DI = % of DI that is not spent 
• APC and APS
• APC + APS = 1
• 1 - APC = APS
• 1- APS = APC
• ADC > 1: Dissavings 
• -APS : Dissavings 
• MPC and MPS
  
• Marginal propensity to consume 
• Change in C/ Change in DI
• % of every extra dollar earned that is spent 
• Marginal propensity to save 
• Change in S/ Change in DI
• % of every extra dollar earned that is saved 
• MPC + MPS = 1
• 1-MPC = MPS
• 1-MPS = MPC
• Determinants of C and S
• Wealth 
• Expectation
• Household debt 
• Taxes

Unit 3 February 21

• What is investment
• money spent or expenditures on
• new parts ( factories )
• Capital equipment ( Machinery )
• Technology ( hardware and software )
• New homes 
• Inventories
• Expected rate of return
• How does business make investment decisions
• cost/ benefit analysis
• How does business determine the benefit 
• expected rate of return 
• How does business count the cost 
• Interest costs
• How does business determine the amount of investment they undertake 
• How do you compute the real interest rate (r%) - r% = i% - 𝚷% ( real GDP = Nominal GDP -Inflation)
• What then, determines the cost of an investment 
• What is the slope of the investment demand curve
• Downward Sloping 
• Why
• when interest rates are high, fewer investment are profitable; when interest rates are low, more investment
• Shift in investment demand
• Cost of production
• Business taxes 
• Technological 
• Stock of capital 
• Expectations
• Aggregate Supply- The level of real GDP (GDPr) that firms will produce at each price level
  
• Long- Run Vs. Short- Run
• Long Run- Period of time where input prices are completly flexible and adjust to changes in price level
• The long run, the level of real GDP supplied is independent of the price level 
• Short Run- period of time where input prices are sticky and do not adjust to changes in the price level
• In the short run, the level of real GDP supplied is directly related to the price level 
• Long- Run Aggregate Supply (LRAS)
• The long- run aggregate supply or LRAS marks the level of full employment in the economy 
  
• Short-Run Aggregate supply (SRAS)
• Because input prices are sticky in the short-Run, the SRAS is upward sloping 
  
• Changes in SRAS
• An increase in SRAS is seen as a shift to the right 
• A decrease in SRAS is seen as a shift to the left 
• The key to understanding shift in SRAS is per unit cost of production
• Per unit production cost = Total input / Total output cost 
• Determinants of SRAS
• input prices 
• productivity 
• Institutional Environment
• input rices - domestic resource rate 
• wages ( 75% of all business costs )
• Cost of capital 
• Raw materials ( Commodity prices )
• foreign resource prices
• strong money = lower foreign prices
• Weak money = Higher foreign resource prices 
• Market power 
• monopolies and cartels that control resources control the prices of the resources
• increase in resource prices = SRAS shift right 
• Decrease in resource prices = SRAS shift left 
• More productivity = lower units production  cost = SRAS shift left
• Lower productivity = higher unit production cost = SRAS shift right 
• legal- institutional environment
• taxes and subsides
• taxes ( money to government ) on business increase per unit production cost = SRAS shift left
• Subsides ( money from government ) to business reduced per unit production cost = SRAS shift right 
• Government Regulation
• Government regulation creates a set of compliance = SRAS shift left
• Deregulation reduces compliance cost = SRAS shift right 
• 
  

Unit 3 February 16

• Determinants of AD
• Consumption (c)
• Gross private Investment (Ig)
• Government Spending (G)
• Net exports (Xn) = Exports - Imports (X-M)
• Change in consumer spending 
• Consumer wealth (Boom in stock market)
• Consumer Expectations (people fear a recession)
• Household indebtedness ( more consumer debt)
• Taxes (decrease in income taxes)
• Change in investment spending 
• Real interests rates (price borrowing money)
• Future Businesses expectations ( high expectations )
• Productivity and technology (new robots )
• Business taxes 
• Change in Government spending
• war 
• Nationalized health care
• Decrease in defense spending 
• Change in net exports (X-M)
• Exchange rates
• if U.S. dollar depreciates relative to the euro
• National Income compared to abroad 
• if a major importer has a recession 
• if the U.S. has a recession
• AD = GDP = C + Ig + G + Xn
• Government Spending 
• more government spending ( AD Shifts right )
• Less government spending  ( AD shifts left )

Unit 3 February 17

• Aggregate Demand Curve
• AD is the demand by consumes, business, government and foreign countries
• Changes in price level cause a move along the curve not a shift of the curve
• AD= C + I + G + Xn
• A multiplier effect that produces a greater change than the original change in the 4 components
• increase in AD = AD shift to the right

Unit 2- February 9

• Unemployment- the percentage of people who don't have jobs that are in the labor force
• Unemployment rate = #unemployment ➗#in labor force ✖ 100
• labor fore = Unemployment = employment
• standard unemployment is 4-5%
• people not in the labor force
• kids
• military personal
• people in mental institutions
• home makers
• retired people
• full-time students
• people in jail or prison
• discouraged
• 4 types of unemployment
• Frictional Unemployment
• "Temporarily Unemployment" or being between jobs
• individuals are qualified workers with transferable skills but they aren't working
• Seasonal Unemployment
• this is a specific type of frictional unemployment which si due to time of year and the nature of the job 
• these jobs will come back 
• Structural Unemployment
• Change in the structure of the labor force make some skills obsolete 
• Workers don't have transferable skills
• Cyclical Unemployment
• as demand for goods and services falls, demand for labor falls and workers are fired
• The natural rate and fall employment
• two of the three types of unemployment are unavailable 
• frictional
• structural
• Together they make up the natural rate of unemployment
• frictional + Structural = NRU (4-5%)
• full employment means no cyclical unemployment
• okun's law- when unemployment rises 1% above the natural rate, GDP fall by 2%
• People that are employed
• Part time workers
• people on a leave of absence
• people who work 1 hour a month
  

Unit 2- February 2

• Inflation- an increase or rise in price
• Purchasing power- the amount of goods and services that your money can buy
• three causes of inflation
• printing too much money
• demand-pull inflation
• it is caused by and excess of demand over output that pulls prices upward
• cost-push inflation- it is caused by a rise in per unit production cost due to increasing resources cost
• inflation rate formula- current year price index - base year price index ➗ base year price index ✖ 100
  
• Rule of 70- it is used to calculate the number of years it will take for the price level to double at any given rate of inflation
• 70 ➗ annual rate of inflation
• the ideal inflation rate should be 2-3%
• Deflation- a general decline in price level
• Disinflation- occurs when the inflation rate declines 
• Nominal interest rate- the unadjusted cost of borrowing a lending money
• Real interest rate- the cost of borrowing or tending, adjust for inflation
• Nominal - Expected inflation
• Hurt by inflation
• lenders-people who lend money (at a fixed interest rate )
• People with fixed income
• Savers
• Helped by inflation
• Borrowers- people who borrow money
• a buisness where the price of the product increases faster than the price of resources

Unit 2- February 3

• Nominal GDP- the value of output produced in current prices
• it can increase from year to year if either output or prize increases
  
• Real GDP- the value of output on constant base year prices
• it adjust for inflation
• it only increases if output increases
  
• formula is P * Q
• use real GDP to measure economic growth
• in the base year real GDP and Nominal GDP are equal
• in years after the base year nominal GDP will exced real GDP
• in years before the base year, real GDP will exceed nominal GDP
• GDP Deflator- a price index used to adjust from nominal to real GDP
• nominal GDP ➗ Real GDP ✕ 100
• in the base year GDP Deflator will always equal 100
• for years after the base year GDP deflator is greater than 100
• for years before the base year GDP deflator is less than 100
  
• Consumer price index( CPI )- it measures inflation by tracking changes in the price of a markets basket of goods
• Price of market basket in the current year ➗Price of market basket in the base year ✕ 100

Unit 2- January 31

• Expenditure approach to GDP
• expenditure is spending
• Income approach to GDP
• Wager rents interest profits + Statistical Adjustments
• Trade = Exports - Imports
• Budgets= government purchases of goods and services + government transfer payment - government tax and fee collection
• if the number is positive its a deficit, if its negative its a surplus
  

Unit 2- January 30

• GDP- Gross Domestic Product
• The total value of all final goods and services produced within a country's borders within a giving year 
• GNP- Gross national product
• The total value of all final goods and services produced by americans in a given year.
• GDP= C + Ig + Xn
  
• C- Consumption ( Includes the purchases of final goods and services)( 67% of economy)
• Ig-Gross Private Domestic Investment (18% of the economy) (Includes new factor equipment, factory equipment maintenance, construction of housing, unsold inventory of product build in a year)
• G- Government spending (17% of the economy) ( government purchasing goods and services)
• Xn- Net exports (exports - imports) ( -2% of the economy)
• Included in GDP
• C, Ig, G, Xn
• Excluded in GDP
• Intermediate goods
• adding double or multiple country
• Second hand goods 
• avoiding double or multiple counting
• Stock and Bonds
• no production involved 

Unit 2- January 26

• Circular flow model- it represents the trade of an economy by flows around the circle
  
  
  
  
  
• Household- a person or group of people who share an income
• Firm- An organization that produces goods and services for sale

Unit 1

January 20

• Equilibrium- is the point at which the supply curve and the demand curve intersect
• Excess Demand- it occurs when quantity demanded is greater than quantity supplied
• Results in a shortage
• Shortage- This is where consumers can't get enough of the quantities they desire
• Price Ceiling- it occurs when the government puts a legal limit on how high the price of a product can be.
• creates a shortage 
• is always below the equilibrium
• Ex. The government sets a price ceiling for a flu shot
• Ex. Rent control
• Excess Supply- It occurs when quantity supplied is greater than quantity demanded
• Price floor- It is the lowest legal price a commendity can be sold at
• They are used by the government to prevent prices from becoming too low
• Ex. Minimum wage

Unit 1

January 17

Total Revenue

P*Q (Price * Quantity)

• Marginal Revenue- The additional income from the sale of an additional product
• Fixed cost- A cost that doesn't chnage no matter how much of a good is produced
• Ex. Mortgage, salary
• Variable cost- A cost that rises or falls depending upon how much is produced
• Ex. Electricity

Unit 1

January 12

Calculating Elastic Demand

1. Quantity: New quantity- old quantity ➗ old quantity
2. Price: New price - Old Price ➗ Old Price
3. PED: % Change in Quantity ➗ % change in Price

Unit 1

January 11

• Elasticity of Demand- A measure of how people react to a price in demand
• Elastic Demand- Demand that is very sensitive to a change in price
• Products is not a necessity
• Available substitute
• Examples
• Sodas
• Fur Coat
• Pizza
• it is always greater than one
• Inelastic Demand- it is not very sensitive to a change in price 
• Product is a necessity 
• few or no substitution
• Example
• Gas
• Salt
• Insulin
• it's always less than one 
• Unitary Elastic- Its is equal to one

Unit 1

January 6

Two Types of Efficiency

• Productive Efficiency
• Products are being produced in least costly way.
• This is any point on the production possibilities curve
• Allocative Efficiency
• The products being produced are the ones most desired by society
• This optimal point on the PPC depends on the desires of society

Unit 1

January 5

• Thinking at the margins- Deciding whether to add or subtract one additional unit of some resource.
• Productive possibility graph- It shows alternative ways to use an economics resource
• the line on the PPG is known as the frontier or curve.
• when producing at the frontier efficiency occurs 
• when producing benet the frontier under utilization occurs.
• Efficiency- Using all resources in such a way to maximize the production of goods and services
• Efficiency increases profits
• Utilization- Opposite of efficiency 
• using fewer resources that an economy is capable of using
• leds to a decrease in profits
• Point A- Attainable and Efficient ( On the curve)
• Point B- Attainable and Inefficient/Underutilization Unemployment or Underemployment (Inside the Curve)
• Point C- (Outside the curve)

4 Key assumption

1. Only 2 goods can be produced
2. Full employment of resources
3. Fixed resources (Factors of Production)
4. Fixed technology

Three Types of Movement that Occur Within The PPC

1. Inside the PPC
2. Along the PPC
3. Shift of the PPC

Unit 1

January 4

• Goods- Than-gable commodities 
• Consumer goods- goods intended for final use by consumer
• Capital goods- Items used in the creation of other goods
• Services- Work performed for someone

Factors of Production

• Land- Natural resources
• Labor- Work exerted
• Capital
• Human Capital- People acquire skill and knowledge through experience and education
• Physical Capital- Money, tools, buildings, and machines
• Entrepreneurship- Involves risk taking, combine the factors of production in order to be successful
• Trade off- An alternative that we sacrifice when we make a decisions.
• Opportunity Cost- Next best alternative
• Guns or Butter- Trade off that the government face when choosing whether to produce more or less military goods or consumer goods. 

Unit 1

 January 3

Basic Concepts of Economics

• Macroeconomics- The study of the economy as a whole
• Microeconomics- The study of individual or specific units of the economy.
• Supply and Demand
• Business Organization
• Positive economics- Claims that attempt to describe the word as is 
• collects and presents facts 
• Very descriptive  
• Normative economics- Claims that attempt to prescribe how the world should be.
• Needs- Basic requirements for survival
• Wants- Desires 
• Scarcity- The fundamental economic problems that all societies face
• How the satisfy unlimited wants with limited resource
• Shortage- Situation in which quantity demanded is greater than quantity supplied.