File - Economy Unit Portfolio

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Unit 1: Economic
Fundamentals Portfolio
Michael Duthie
AP Macro
7th period
Economics

Definition


The social science that studies the choices that individuals, businesses,
governments, and entire societies make as they cope with scarcity, the incentives
that influence those choices, and the arrangements that coordinate them.
Example

The allocation of budget and time, goods and services that businesses produce and
governments provide, and how goods and services will be proved and where
production will be located.
Scarcity

Definition


The condition that arises because wants exceed the ability of resources to satisfy
them.
Example

Someone wants to buy a boat, and they also want to buy a television. The have
enough money to buy either the boat or the television but not both. This person is
facing scarcity.
Opportunity Cost

Definition


The opportunity cost of something is the best thing you must give up to get it
Example

You have the choice of going to the mall, playing a video game, or doing your
homework. If you choose to play a video game, then you cannot go to the mall or
do your homework. The opportunity cost of playing a video game is the best
alternative you forgo. If the best alternative is doing your homework, then the
opportunity cost of playing a video game is doing your homework.
Marginal Analysis

Definition


An examination of the additional benefits of an activity compared to the additional
costs of that activity.
Example

If you exercise five times a week and are thinking of adding a sixth day, you would
use marginal analysis to determine whether the benefits of the sixth day would be
worth the cost of the sixth day.
Micro vs Macroeconomics


Definition

Microeconomics is the study of the choices of individuals and businesses make and
the way these choices interact and are influenced by governments.

Macroeconomics is the study of the total effects on the national economy and the
global economy of the choices that individuals, businesses, and governments make.
Example

Micro-the study of demand and supply, price ceilings, minimum wage, and
opportunity cost.

Macro- the study of the U.S. unemployment rate, international trade, and
inflation.
Normative vs. Positive


Definition

Normative statements are disagreements that can’t be settled with facts. They are
based on values.

Positive statements are disagreements that can be settled with facts. They are
statements about what is.
Example

Normative- “We should decrease our use of coal.” That can’t be settled with facts.

Positive- “Our planet is warming because of the quantity of coal we’re burning.”
This can be tested with facts.
Goods and Services

Definition


The objects (goods) and the actions (services) that people value and produce to
satisfy human wants.
Example

Goods- popcorn, cars, clothes

Services- a movie showing, a plane flight, etc.
Factors of Production

Definition


The productive resources that are used to produce goods and services—land, labor,
capital, and entrepreneurship.
Example

To make soda, Coca-Cola uses labor and capital.
Costs of Production

Definition


A cost incurred by a business when manufacturing a good or producing a service.
Example

If costs are too high, these can be decreased or possibly eliminated. Production
costs can be used to compare the expenses of different activities within a
company.
Comparative Advantages

Definition


The ability of a person to perform an activity or produce a good or service at a
lower opportunity cost than anyone else.
Example

An American worker can make 2 game machines or 1 laptop. A German worker can
produce 1 game machine and 2 laptops in the same amount of time. The American
worker has a comparative advantage in making game machines and the German
worker has a comparative advantage in making laptops.
Absolute Advantage

Definition


When one person (or nation) is more productive than another—needs fewer inputs
or takes less time to produce a good or perform a production task.
Example

Japan make 10 computers and 5 cars in an hour while American makes 8 computers
and 3 cars in an hour. Japan has the absolute advantage.
Substitute

Definition


A good that can be consumed in place of another good.
Example

If the price of cookies rises, Julie will switch to brownies. For Julie, cookies and
brownies are substitutes.
Complement

Definition


A good that is consumed with another good.
Example

Beth likes to eat potato chips with soda(can you blame her?). For beth, potato
chips and soda are complements.
Normal Good

Definition


A good for which the demand increases when income increases and demand
decreases when income decreases.
Example

When Calahan was a student, was a student, he had one watch. But now that he
has graduated and earns $40,000 a year, he has 5 watches. When his income
increased, he bought more watches. Watches are a normal good for him.
Inferior Good

Definition


A good for which demand decreases when income increases and demand increases
when income decreases.
Example

Aiden ate hamburger meat for dinner everyday when he was a student. But when
he graduated and started making more money, he started eating steak more than
hamburgers. As Aiden’s income increased, his demand for hamburger meat
decreased. Hamburger meat is an inferior good.
Surplus

Definition


The amount by which the quantity supplied exceeds the quantity demanded.
Example

More chocolate is made than is demanded by consumers. Suppliers must cut the
price of chocolate to sell the excess amount of chocolate.
Shortage

Definition


The amount by which the quantity demanded exceeds the quantity supplied.
Example

Not enough chocolate is made for the demand of consumers. Suppliers raise the
price in order to make less people buy it so they don’t run out.
Price Floor

Definition


A government regulation that places a lower limit on the price at which a
particular good, service, or factor of production may be traded.
Example

Suppose the government requires that milk producers receive a minimum of $4.00
a gallon for milk. Such a regulation is a price floor.
Price Ceiling

Definition


A government regulation that places an upperlimit on the price at which a
particular good, service, or factor of production may be traded
Example

Suppose the government passes legislation governing the maximum price that
natural gas distributors can charge households. Such a regulation is a price ceiling.
Marginal Benefit=Marginal Cost

Explanation


When the marginal benefit from something equals the marginal cost, the choice is
rational and it is not possible to make a better choice. Scarce resources are being
used in the best possible way.
Example

The marginal benefit and cost of playing video games rather than studying is the
same, therefore you can play video games without it being a detriment to your
grades.
Law of Increasing Opportunity Cost

Explanation


As you increase production of one good, the opportunity cost to produced the
additional good will increase.
Example

Each hat you make and sell brings in $30 in profit, and each belt brings in $20. To
make more money, you shift more workers from belt production to hats. Some
workers can make a hat just as quickly as a belt, so the opportunity cost it low:
You give up $20 to make $30. But others are belt specialists. It might take them as
much time to make one hat as it does to make four belts. With them, the
opportunity cost is high: To make $30, you're giving up $80. Meanwhile, your
stepped-up hat production has glutted the hat market, forcing you to cut prices
and reduce profit to $25 a hat. The opportunity cost rises further because of the
price decrease.
Law of Demand

Explanation


Other things remaining the same, if the price of a good rises, the quantity
demanded of that good decreases; and if the price of a good falls, the quantity
demanded of that good increases.
Example
If the price of a computer falls, other things remaining the same, the quantity of
computers demanded increases. If the price of dental services rises, other things
remaining the same, the quantity of dental services demanded decreases.
Nonprice Determinates of Demand

Explanation


Income, tastes and preferences, the price of related goods, changes in
expectations od future relative prices, and market size/population. These factors
shift the demand curve.
Example

A decrease in the market size/population of a good would cause a decrease in
demand. The demand curve shifts to the left.
Law of Supply

Explanation


Other things remaining the same, if the price of a good rises, the quantity supplied
of that good increases; and if the price of a good falls, the quantity supplied of
that good decreases.
Example

If the price of a movie ticket rises, other things remaining the same, the quantity
of movie tickets supplied increases. If the price of banking services falls, other
things remaining the same, the quantity of banking services supplied decreases.
Nonprice Determinates of Supply

Explanation


Input costs, technology, taxes and subsidies, expectations of future relative prices,
and the number of firms in the industry. These shift the supply curve
Example

New technology is made to make production faster. This increases supply and shifts
the supply curve to the right.
Market Equilibrium(formula)

Explanation


When the quantity demanded equals the quantity supplied—buyers' and sellers'
plans are in balance.
Example

When people plan to buy 1,000 haircuts a week at a price of $60 each and the
stylists plan to sell 1,000 haircuts a week at a price of $60 each, then buying and
selling plans are balanced and the market for haircuts is in equilibrium.
Production Possibilities Frontier
Circulatory Flow
Market Equilibrium(model)
Unit 2: Macroeconomic
Indicators Portfolio
Michael Duthie
AP Macro
7th period
GDP

Definition


The market value of all the final goods and services produced within a country in a
given time period.
Example

In the United States in 2013, the market value of all the final goods and services
produced was $16,800 billion. U.S. GDP in 2010 was $16,800 billion.
Unemployment

Definition


Being unemployed means that you are at or above the working age(16 years old),
not institutionalized, and actively looking for a job.
Example

A new college graduate searching for a new job is a good example of
unemployment.
Frictional Unemployment

Definition


The unemployment that arises from normal labor turnover—from people entering
and leaving the labor force and from the ongoing creation and destruction of jobs.
Example

A new college graduate looking for work, someone shifting jobs based on the
seasons, someone quitting a job and looking for a new one.
Structural Unemployment

Definition


The unemployment that arises when changes in technology or international
competition change the skills needed to perform jobs or change the locations of
jobs.
Example

An assembly line worker being replaced by a machine.
Cyclical Unemployment

Definition


The fluctuating unemployment over the business cycle that increases during a
recession and decreases during an expansion.
Example

A factory worker loses his job during a recession. Once the economy starts moving
towards an expansion, he will likely be rehired. His period of unemployment is
cyclical unemployment.
Full Employment

Definition


When there is no cyclical unemployment or, equivalently, when all the
unemployment is frictional, structural or seasonal.
Example

A good example would be when we are in an expansionary and there is a peak
when there’s no cyclical unemployment.
Inflation v. Deflation


Definition

Inflation is a situation in which the price level is rising and the inflation rate is
positive.

Deflation is a situation in which the price level is falling and the inflation rate is
negative.
Example

A combination of recession and inflation occurred in the United States and the
global economy in the mid-1970s and early 1980s.
GDP= C + I + G + NX

Explanation


C stands for Consumption expenditure, I stands for Investment, G stands for
Government expenditure on goods and services, and NX stands for Net eXports(the
difference of imports and exports) of goods and services. Added together, they
make total expenditure, or GDP
Example

All consumer expenditure, investment expenditure, government expenditure, and
net exports added together.
Real GDP

Explanation


Real GDP is nominal GDP divided by the price index. Real GDP is just nominal GDP
adjusted for inflation.
Example

11.24(nominal)/107(price index)=10.50(real)
Economic Growth Rate

Explanation


(Real GDP in current year-Real GDP in previous year)/(Real GDP in previous year) X
100
Example

(8.4 trill-8.0 trill)/(8.0 trill)X100=5 percent growth rate
Unemployment Rate


Explanation

The percentage of the people in the labor force who are unemployed

(Number of people unemployed/labor force)X100
Example

(11.8 million/155.7 million)x100= 7.6 percent
Output Gap

Explanation


real GDP minus potential GDP expressed as a percentage of potential GDP.
Example
Consumer Price Index

Explanation


(CPI is the cost of CPI basket at current period prices/cost of CPI basket at base
prices) x100
Example

(70/50)X100=140
Real Inflation


Explanation

The percentage change in the price level from one year to the next

(CPI in current year-CPI in previous year)/(CPI in previous year)x100
Example

(140-120)/(120)X100=16.7 percent
Business Cycle
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