Business Cycle

January 20, 2015

Expansionary: Real output in the economy increasing and underemployment rate declining.The population is able to buy more.

Peak: Real GDP is at it highest.

Contraction (Recession): Real output in a economy its decreasing and underemployment its rising. Inflation rate are rising.

Trough: It the lowest point of real GDP, means the end of a recession. 

Equilibrium

January 16, 2015

Equilibrium: Point in which the supply and demand curve intercept. "All resources are being used efficiently"

• Shortage  QD > QS     Quantity Demanded > Quantity Supply
• Surplus  QS > QD     Quantity Supply < Quantity Demanded

Terms :

• Price Floor is a government imposed price limit on how low a price can be changed for a product 

• Price Ceiling is a government imposed limit on how high a price can be charged for a product.

• Fixed Cost is a cost that does not change no matter how many are produced.

• Variable cost is a cost that changes.

• Marginal Cost is a cost of producing one more unit of goods.

• Marginal Revenue is the additional income from selling one more until of a good.

Formulas: 

• Total Cost: Total Fixed Cost + Total Variable Cost  &  Average Total Cost / Quantity
• Average Fixed Cost: Total Fixed Cost / Quantity 
• Average Variable Cost: Total Variable Cost / Quantity
• Average Total Cost: Average Fixed Cost + Average Variable Cost  &  Average Variable Cost
• Marginal Cost: New Total Cost - Old Total Cost 
• Total Revenue: Price x Quantity 

Elasticity

January 14, 2015

Price Elasticity Demand: Tells how drastically buyers will cut back or increase their demand of a good when price rises or fall.

• Elastic Demand: The demand that will change greatly if theres a change in price "many substitute" E > 1
• Inelastic Demand: The demand for product will not change regardless of the price "few or no substitute" E < 1
• Unit Elastic (Unitary Elastic): The price elasticity of demand is equal to 1. E = 1

Steps and Formulas to solve Elasticity Problems.

1. % Δ in quantity
                         New Quantity - Old Quantity
                                    Old Quantity

2. % Δ in price
                        New Price - Old Price
                                 Old Price

3. PED - Price Elastic of Demand
                        Δ in quantity
                         Δ in price

Demand and Supply

January 12, 2015

Demand: Is the quantity that people are willing to buy at various prices.

• The law of demand- There's an invers relationship between price and quantity demanded. 
• The causes of a change in quantity demanded- *Change is represented by a Delta Δ*

• A Δ in buyers taste "Advertising"
• A Δ in number of buyers "Population"
• A Δ in income 
• Normal goods that buyers buy more of when income rises. 
• Inferior goods that buyers buy less when income rises.
• A Δ in price on relative goods. 1. Substitute good that server roughly the same purpose to buyers.  2. Complementary goods often consume together.
• A Δ  in expectation

Supply: Quantity that seller are willing  and able to produce various quantities.

• The law of supply- Theres a direct relationship between price and quantity supply.
• The causes of a change in quantity supply- *Change is represented by a Delta Δ*
• A Δ in weather
• A Δ in technology
• A Δ in cost of production
• A Δ in number of sellers
• A Δ in taxes 
• A Δ in expectation

Production possibility frontier

January 8, 2015

1. Scarcity vs. Shortage

• Scarcity- Is the most fundamental economic problem that all societies face, trying to to satisfy unlimited wants with limited resources. Its a permanent problem.
• Shortage- Is the quantity demanded greater than quantity supply. Its a temporary problem.

2. Goods vs. Services

• Goods is a material that satisfies human wants and provides utility. There are consumer goods and capital items.
• Consumer goods that are intended for final use by the consumer.
• Capital items used in the creation for other goods.
• Services is work perform for someone else.

3. Factors of Production

• Land: Natural resources.
• Labor: The work force.
• Capital: Human & Physical
• Human knowledge/skill gain through education and experience.
• Physical Human made object to create other goods and services.
• Entrepreneurship: Is is the process of starting a business or other organization, innovation people can take risk.

4. Production possibility frontier:  A production possibility graph shows how a good can be produced more than the other, having an inverse relationship to each other.

• Trade-offs alternative that we give up when we chose one course of action over another.
• Opportunity cost is the most desired alternative given up by making a decision.
• Guns and Butter model is the classic example of the production possibility frontie.
• Production possibility graph.
•  If point is in the production possibility curve it's efficient and attainable
•  If point is inside the curve it's attainable but inefficient. Causes can be recession, war/famine, underemployment, drop in population.
• If point it's outside the curve it's unattainable. Causes can be economic growth, new technology, discover new resources.

Introduction to Macroeconomic

January 7, 2015

1. Macroeconomics is the study of the entire economy, which covers the ups and downs of the economy. 

Microeconomics is the study of parts of the economy in which people make decisions and how the decisions interact.

Example for Macroeconomics:

•  GDP- Represents the monetary value of all the good and services in a nation, withing a specific time.
• Inflation- Its a progressive increase in the price and things get more value but the money buys a lesser percentage of the good or service.
• Unemployment- A person not being able to get a job but would like to have one.

Example for Microeconomics:

• Supply and Demand- Is the amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.
• Market Structure- Is best defined as the organisational and other characteristics of a market. We focus on those characteristics which affect the nature of competition and pricing.

2. Positive Economics (fact) describes the way the economy actually works. 
 Normative Economy (opinion) describes the way the economy should work.

Example for Positive Economics:

• Minimum Wage- The lowest wage permitted by law or by a special agreement of the government. 

Example for Normative Economics:

• Taxes- We should cut the taxes in half to increase the available income.

3. Basic Needs is  is something you have to have, something you can't go without.
 Wants is something you would like to have, but it is not absolutely necessary. 

Examples for Basic Needs:

• Food- If you don't eat, you will not be able to survive.

Examples for Wants:

• Music- You might like music a lot, but it does not need you cannot live without it.