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Studying supply, demand, price, and industry.
Many things need to come together in order for the nation to come together such as GDP, Trade, debt and etc.
WHy do we have economic problems?
Due to scarcity
What 4 things are required in an economic growth that can solve the issue of scarcity?
- Labor (Train & educ, Food, Healthcare, Housing Law & Order)
- Capital ($, investments, machinery, venture capitalists)
- Entrepreneurial Spirit
- Is something that you can test.
- Hard Facts back it up.
- It is a science
- Has a cause & effect
- Personal Bias
- Emotions / Feelings involved
- No facts / All junk
Who controls the Fiscel Policy:
What is it?
- Regulations of Govt Spending & IRS Tax Laws
Who controls the Monetary Policy:
What is it?
- Federal Reserve Bank
- In charge of printing $ & Controls Banks
Can the president order to change the fiscel or monetary policy?
What is the Keynesian Formula?
1/1-MPC x (1-Tax Rates) x C + I + G +E/-I = GDP
What is the Keynesian formula & what does everything represent?
1/1-MPC x (1-Tax Rates) x C + I + G +E/-I = GDP
- MPC= Marginal Propensity to Consume (avg american spends .95-.99%)
- C= Consumer Spending (2/3 of economy)
- I= Investment Spending (Busin, Housing, Social Invest.)
- G= All of Govt Spending (State, Federal, Local)
- GDP= Gross Domestic Prod.(ALL goods/services your economy has prod)
When is market equilibrium met?
When supply & demand curve intersect.
Law of demand:
- Lower Price = More Sold
- Higher Price = Less Sold
Law of Supply =
Price must go up if more goods are to be offered
Price x Quantity = __________
What is the supply curve dependent on?
- Cost producing of goods or services
- Anticipated Market Price & total revenue
- Availability of land, labor, capital, & entrprenuial spirit
Economics is the study of...........
of how people manage their resources
Give an example of an carl marx type of idea?
Ex: CEO's make too much and steal from the bottom workers.
Rasing Taxes =
Lowering Taxes =
- Rasing Taxes = Lowers Economic Growth
- Lowering Taxes = Rasies Rconomic Growth
What is negative externality and is an example of what?
- Negatively Externality (air pollution, child labor, or traffic jams.)
- IS an example of a market failure
What are some govt intervention methods to remedy market failure?
- 1. Direct regulation or pass new laws
- 2. Impose Taxes
- 3. Provide subsidies
- 4. Provide a public good (ex GPS)
The point where demand curve and supply curve is called?
What is a price ceiling and what does it typically cause?
- when price is set below market equilibrium.
- CREATES SHORTAGES
- kuz ppl don't produce it anymore because they don't make money.
What is a price floor and what does it typically cause?
when price is set above market equilibrium.
Price floors typically create surpluses of better service and more goods.
As income goes up so does consumption of lavish goods and services. (ex: steak & sushi)
What is an Inferior Goods:
Is a good in which consumption decreases in response to an increase in income (hot dogs, top ramen, instant noodles)
Also, the demand for an inferior good will rise if the income decreases.
Example of demand curve for technology:
Technology: Laptops have improved in power & size over the last few years so the demand curve shifted to the right. So the demand curve for desktops has shifted to the left.
Interrelationship With other products
As computer sales increase, the demand for access to the internet shifts to the right as well.
- Although the consumer is willing to pay more for the good or service, the market price is a bargain. Consumer feels like they are getting a
Producer willing to accept less for his goods or services but the market is willing to pay more. Producer feels as if he hit the jackpot on the deal.
If the quantity demanded changes a great deal due to a change in price, then demand is ______________.
If the quantity demanded changes an only slightly due to a larger change in price, then demand is _________
(you GOTTA have it it is a necessity).
(Graph = ________)
- Graph = More steep
What is an example of an Inelastic Item?
- WE MUST HAVE IT IN ORDER TO BE MOBILE
EVERY BUSINESSS IS TRYING TO MAKE THEIR DEMAND CURVE SEEM _________ WHERE THEY WANT TO PSYCHOLOGICALLY MAKE YOU BELIEVE THAT YOU ABSOLUTLEY NEED THEIR PRODUCT. WHEN THEY ACHIEVE WITH THIS THEY ALSO ACHIEVE WITH SETTING THEIR OWN PRICES AND CUSTOMERS STILL PURCHASE IT. MAKING CUSTOMERS FORGET ABOUT PRICE. ANOTHER EXAMPLE IS REALTORS.
What is the elasticity formula referred to as?
If the elasticity result >1, then the demand is __________ (flat, cannot increase price with
If the elasticity result <1, then the demand is _______ (steep, can increase price with this)
If the elasticity result =1, then its _______ (Ex: if raise Class
price by 20% and lose 20% of students then this occurs)
Price elasticity of demand or aka "simple formula"
Price elasticity of demand = % change in quant demanded / % change in price
- Unitary Elastic
What is a better and more accurate formula that the Price Elasticity of demand formula?
What do both have in common?
- Midpoint Formula
- Determines the Price Elasticity of Demand
- NewQ – OldQ_____________
- (NewQ + OldQ)/2
- NewP – OldP
- (NewP + OldP) / 2
What is elasticity?
The Responsiveness of Demand & Supply
simply measures how much one economic variable responds to changes in another economic variable
There are MANY things that need to be researched in order to FULLY understand the demand for a good or service. List or name a few:
- Customer demographics (age, education, ethnicity
- Monthly or annual Income
- Past sales history
- Consumer expectations and customer reviews
- Various price combinations vs quantity sold
- Prices offered by competitors
- Price, income, and cross-price elasticity research
- Other value strategies offered by competitiors 2 for 1 offers
- New technology – Online banking via your cell phone
- Strength of Local Economy
- Macroeconomics Factors – unemployment rate/consumer confidence
- Iternational Competition & vaue of US dollars
- GOV price controls & regulations
General office visit may be $500 but the government set a price ceiling for $24 to the doctor per office visit for Medicaid.
This is an example of price ceiling.
If the items are complementary (cars & tires) consumed hand-in-hand with each other and their demand curves will move together in the same direction.
Pepsi vs coke example then the demand curves for these products will move in the opposite direction.
The amount of other products sacrificed to produce a unit of a product.
The sacrifice is the opportunity cost of the choice
Satisfaction obtained from consuming a good
- comparisons of marginal benefits and marginal costs, usually for decision making.
- Marginal means extra or change in.
Scientific Method (5 Steps)
- Observe behavior & Outcomes
- Formulate hypothesis
- Test Hypothesis
- Accept Reject or Modify Hypothesis
- Hypothesis eventually becomes Theory
A widely accepted theory is referred to as?
Ceteris Paribus means?
All Other things remain constant
is a collection of specific economic units treated as if they were one unit.
Ex: lump a millions of consumers in us economy and treat them as one unit called consumers.
The economic perspective stresses what 3 things?
- scarcity and the necessity of making choices
- Assumption of purposeful behavior
- Comparison of Marginal Benefit and marginal cost
Shows all combinations of any two products that can be purchased given prices of products and consumer $ income.
Includes all manufactured aids used in producing consumer goods or services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery.
What are the factors of production?
- Entrepreneurial Spirit
Full employment is when
Economy is employing all of its available resources
What does a production possibilities curve show?
Different combinations of goods and services that society can produce in a fully employed economy assuming fixed availability of resources and technologies.
Law of increasing opportunity cost
AS the production of particular good increases, the opportunity cost of producing an additional unit rises.
MB > MC = Good & Pursue
MC > MB = Not Good
Economic growth is the result of 3 things:
- 1) increase of supplies of resources
- 2) improvements in resource quality
- 3) technological advances
- Aka Socialism or COmmunism
- Gov owns most property, resources, and economic decision making.
What 3 things make the market system work?
- Or capitalism
- Private ownership of resources and the use of markets and prices to coordinate and direct economic activity.
Private property Ownership & Freedom of Enterprise and freedom of choice
Means let it be that is keep government from intervening with economy.
- Specializing in one or few things instead of trying to do everything and lose efficiency.
- Specialization also saves time.
Barter creates a problem....
- It requires Coincidence of wants.
- If there is no similar want then there is no exchange.
Consumers are in command in letting producers know (through dollar votes) what is in demand and what will produce a profit.
There is a ___________ relationship between _______ and ________ demanded.
This relationship is called?
- Negative / Inverse
- Price & Quantity
- The Law of Demand
What is the income effect?
Lower price increases the purchasing power of the consumer and vice versa.
Price goes on the ____ axis.
Quantity goes on the ___ axis.
What are Determinants of Demand
Are assumed to be constant and include every other aspect that may influence purchases.
A shift in the demand curve is called?
Change in demand
Superior or Normal goods
- Demand varies directly with money.
- Ex: steak & lobster dinners / Cruises
Goods whose demand varies inversely with $.
AS $ decreases.... Top ramen increases.
The demand curve can shift due to:
- Changes in
- consumer taste
- # of buyers in market
- Consumer Income
- The Price of substitute or complementary goods
A change in demand is _________
A change in quantity is ___________
is a shift of demand curve
Movement from one point to another on DC
What are the determinants of supply?
Either one of these can move the supply cure left or right.
- 1. Resource Prices
- 2. Technology
- 3. Taxes & Subsidies
- 4. Prices of other goods
- 5. Producer Expectations
- 6. # of sellers in market
CHange in quantity supplied....
Change in supply ....
is a movement from one point to another on a fixed supply curve.
Change in supply means a shift of the curve.
What do surpluses do?
Drive prices down
When there is not a shortage of "corn" nor a surplus of corn .... what is this referred to as?
The production of any particular good in the least costly way.
Supply increase and Demand Decrease.....
Will Decrease price of good
Supply Decrease and Demand Increase....
Will Increase price of product.
Supply increase and demand increase.....
Review Page 60 Chart
Supply increase drops price and demand increase increases it.....
Determinants of price elasticity of demand
- 1. Substitutability
- 2. Income
- 3. Luxury vs Necessity