1. Peak: the highest point for GDP, it exhibits the greatest spending and lowest unemployment. 2. Expansion: this is also known as an economic recovery. It is where you have the real GDP increasing which is caused by an increase in spending and a decrease in unemployment. 3. Contraction/Recession: this is the stage where the real GDP declines for six months due to a reduction in spending and an increase in unemployment. 4. TRough: the lowest point of real GDP, it exhibits the least amount of spending and highest amount of unemployed. below is a picture that explains the different stages:
Elasticity
of demand: it is a measure of how consumers react to a change
in price.
Three
types of elasticity of demand:
1.Elastic demand:
demand that is very sensitive to a change in price. Elastic demand is always
greater than 1. {E>1}. The product is not a necessity and there are
available substitutes.
2.Inelastic demand:
demand that is not very sensitive to the change in price. {E<1}. Product is
a necessity, there are few or no substitutes people will buy no matter what.
3.Unit/unitary elastic demand: situation
where a change in one factor causes an equal and proportional change in another
factor. {E=1}.
ELASTIC
DEMAND
INELASTIC
DEMAND
Soda
gas
Steaks
salt
Candy
Insulin/medicine
Fur
coats
milk
toothpaste
Price elasticity of demand (ped)
Step1:
Quantity
New quantity minus old quantity divided by
old quantity
Step2:
Price
New price minus old price divided by old
price.
Step
3: PED
%change
in quantity demanded divided by %change in price.
Fixed
cost
A cost that does not change no matter how much is
produced. ( for example rent, morgage, insurance and salaries).
Variable cost
A cost that rises or falls depending upon how much is
produced. (For example electricity).
Marginal cost
The cost of producing one more unit of a good. (for
example going back late to buy a good at an expired time) new Tc – old Tc.
Below are the formulas:
TC= TFC + TVC
ATC=AFC + AVC
AFC=TFC / Q
AVC=TVC/Q
ATC=TC/ Q
TFC=AFC* Q
MC= NEW TC- OLD TC
TVC=AVC*Q
Supply
is the quantities that producers or sellers are willing to produce at various
prices. The law of supply states that there is a relationship between price and
quantity supplied. When price increases quantity decreases.
What causes a change in quantity supplied?
1.Change
in weather.
2.Change
in the number of sellers or suppliers.
3.Change
in technology.
4.Change
in cost of production.
5.Change
in subsidy.
6.Change
in expectations.
Demand
is the quantities that people are willing and able to buy at various prices.
The law of demand states that there is an inverse relationship between price
and the quantity demanded. When price increases quantity decreases.
What causes a change in demand?
1.Change
in buyers taste.
2.Change
in the number of buyers.
3.Change
in income (normal goods, inferior goods).
4.Change
in price of related goods.(complementary goods, substitute goods).
5.Change
in expectations (looking at the future).
*Change
in price causes a change in quantity demanded and quantity supplied.
Supply:
shift left- decrease
·Decrease in # of sellers
·Poor weather.
·Increase in Cost of production.
·Decrease in technology.
·Increase in taxes
·Decrease in subsidies.
Shift
right- increase
·Decrease in cost of production.
·Increase in technology.
·Increase in taxes.
·Increase in subsidies.
·Increase in # of sellers.
·Good weather.
price ceiling
This occurs when the government puts a limit on how high a good or product can be.
price floor
This is referred to as the lowest price a good or product can be sold at.
11.Macro economics is the study of the
economy as a whole. It deals with topics like:
-International trade.
-wage laws.
-inflation.
2. Micro economics is the study of individual or
specific unit of the economy. For example:
-Supply and demand.
-Market structures.
-Business organization.
Positive economics vs. normative
economics
1.Positive economics attempts to
describe the world as it’s. It is very descriptive, it collects and present
facts and it focuses on the ‘what is’(factual or reliable statements).
2.Normative economics attempts to
prescribe how the world should be. It is very prescriptive in nature (ought to
be, should be).
Needs
vs. Wants
1.Needs are basic requirements for
survival (food, water, shelter and clothing.)
2.Wants are desires of citizens.
Goods vs. services
1.Goods are tangible commodities.
There are two types of goods.
-Consumer
goods:these are goods that are intended for final use by
the consumer.
-Capital
goods:these are items used in the creation of other goods.
2.Services mean work that is
performed for someone.
Scarcity vs. shortage
1.Scarcity
is the most fundamental economic problem that all societies face. How to
satisfy unlimited wants with limited resources.
2.shortage
is when quantity demanded is greater than quantity supplied.
Factors of production
These
are resources required to produce goods and services.
1.Land:
natural resources.
2.Labor:
work force.
3.Capital:
human capital (where the skill is learnt from)
4.Entrepreneurship:
innovated and a risk taker.
Trade
offs
Alternatives that we give up when we choose one course of action over
another (bringing ones lunch vs. buying lunch).
