ECONOMICS DPM REVIEW

ECONOMICS DPM REVIEWScarcity is everywhere! (Unlimited needs/wants-Limited resources) When a choice is made, the opportunity cost is the value of what is given up.Therefore, all countries must make choices when answering the three economic questions.What should be produced?Who should produce them?Who will get them?The Factors of Production (FOPS): Land (natural resources)Labor (people working)Capital (things businesses use to make money)Entrepreneurship (people who invent things, for example)

Basic Economic IdeasThe PPFShows the possible combinations of two goods that can be produced Shows scarcity and opportunity cost: make more of one, give up some of the otherPoints inside the curve are possible, but underutilizing resourcesPoints outside the curve are impossible for now, but might be in the future with technology advances

Supply and DemandDemand curve: shows what consumers are willing and able to buy at various pricesPrice goes up, quantity demanded goes downSupply curve: shows what consumers are willing and able to by at various prices.Price goes up, quantity supplied goes up

Supply and DemandMarkets will return to equilibrium without government interferenceA price of $1 will create a shortage where the quantity demanded is greater that the quantity supplied.Government imposed= price ceilingA price of $3 will create a surplus where the quantity supplied is greater than the quantity demanded Government imposed= price floor

Supply and Demand DeterminantsDemand Curves will shift due to changes in:Taste and Preferences of consumersIncome of consumersBuyers (number of)Expectations of ConsumersRelated goods (price of)Supplements and complementsSupply Curves will shift due to changes in:TechnologyOther goods (price of)Number of SellersExpectations of FirmsResource PricesSubsidies and TaxesSubsidy- tax in reverse6Shifting Supply and Demand CurvesINCREASE TO THE RIGHTDECREASE TO THE LEFT

Circular Flow ModelRemember: Firms purchase stuff in the factor marketPeople purchase stuff in the product marketBelow: Red arrows are physical flow and green arrows are monetary flow

Types of Economic Systems9The Business Cycle

GDP: total dollar value of all final goods and services produced in an economy in a year (measures the growth of the US economy by calculating output of businesses in America)Types of Unemployment: SeasonalStructuralFrictionalCyclicalEconomic IndicatorsRevenue: money taken in by the federal government, largest source of revenue- income taxesExpansionary Fiscal Policy: Government lowers taxes and increases spending (practiced during contraction in business cycle)Contractionary Fiscal Policy: Government raises taxes and decreases spending (practiced during inflationary period)American Fiscal PolicySet up to regulate the US monetary policy and control the supply of American currencyTools of the FED:Discount Rate-Amount of interest The Fed charges member banks to borrow moneyReserve Requirement: Percentage of deposits that member banks are forced to hold ontoOpen Market Operations: The Feds action of buying or selling US government securitiesThe Federal ReserveMoney is used as a unit of accounting when you compare prices of the same item at different retailersExchange Rate: the amount of foreign currency that can be bought with US currency (effects the price of imports)Absolute Advantage/Comparative Advantage:Absolute: country/company can make more of an item than anotherComparative: country/company can produce an item at a lower opportunity costProtectionism vs Free Trade: protectionists want barriers to trade while those in favor of Free Trade do notMoney and TradeLEVELS OF COMPETITIONThus, the MARKET STRUCTURE for an American business depends on their unique competitive situationThere are 4 basic levels of competition Pure CompetitionMonopolistic CompetitionOligopolyPure MonopolyTips for Credit Cards: Charge only what you can afford, pay your balance each month, stay away from cash advances)Which pays more interest: checking or savings accountAre US Treasury Bonds typically seen as a safe investmentPersonal Finance