ECONOMICS FINAL
REVIEW
FACTORS OF PRODUCTION
• Land, labor, and capital: all the
resources that are used to make all
goods and services
ECONOMICS
• The study of how people seek to
satisfy their needs and wants by
making choices
TRADEOFFS
• An alternative we sacrifice when we
make a decision
• ie: more time at work less time to
watch tv
PHYSICAL CAPITAL
• Capital-All human made goods that
are used to produce other goods and
services,
• tools and buildings are physical capital
HUMAN CAPITAL
• The skills and knowledge gained by a
worker through education and
experience
• Human and physical capital needed
in an economy
BASIC ECONOMIC DECISION
• What to produce?
• How to produce?
• How to Finance?
GUNS OR BUTTER
• The phrase that refers to the tradeoff
that a nation makes when choosing to
produce more military supplies or
consumer goods
PRODUCTION POSSIBILITIES FRONTIER
• The line on a production
possibilities graph that shows the
maximum level of output
WHAT IS DEMAND?
The law states that
all other factors being equal, as the price of a
good or service increases, consumer
demand for the good or service
will decrease.
• A table that lists the quantity of a good that a
person will purchase at each price in a market.
• Shows the quantities demanded
at each price by all consumers in
the market.
• A small change in price  buy much less
of a good.
• Elastic determines if a change in price will
affect your demand for the product.
• A consumer with highly elastic demand
for a good is very responsive to price
changes.
• Demand for a good that you will keep buying
despite a price increase.
• Inelastic determines if a change in price does
not affect your demand for the product.
• A consumer with highly inelastic demand for a
good relatively unresponsive to price changes.
LAW OF SUPPLY
• Supply- the amount of goods available
• According to the law of Supply the higher the
price, the larger the quantity produced
• Quantity Produced- economic term to describe
how much of a good is offered at a specific price
•
Elasticity of supply is a measure of the way quantity
supplied reacts to a change in price.
• If supply is not very responsive
to changes in price, it is
considered inelastic.
• An elastic supply is very
sensitive to changes in price.
WHAT AFFECTS ELASTICITY OF
SUPPLY?
Time
In the short run, a firm
cannot easily change
its output level, so
supply is inelastic.
• In the long run, firms are
more flexible, so supply
can become more elastic.
THE SUPPLY SCHEDULE
• Supply schedule shows the relationship between
price and quantity supplied for a certain good
• Like a demand schedule a supply schedule lists
supply for a very specific set of conditions
• A rise or fall in the price will change the quantity
supplied but not the schedule
MARKET SUPPLY SCHEDULES
• The relationship between price and the total quantity
supplied by all suppliers in market
Market Supply Schedule
Price per slice of pizza
Slices supplied per day
$.50
$1.00
1,000
1,500
$1.50
2,000
$2.00
2,500
$2.50
3,000
$3.00
3,500
NYSE
• New York Stock Exchange
• The New York Stock Exchange (NYSE): handles the
most powerful and established companies
THE DOW JONES INDUSTRIAL AVERAGE
• Stock performance is reported in the Dow Jones
Industrial Average.
• The Dow Jones Industrial Average is usually referred to
as the Dow.
• The Dow monitors and reports generally on the trading
activities of thirty of the most powerful companies.
BULL AND BEAR MARKETS
• A bull market occurs when the stock market rises
steadily over a period of time.
• A bear market occurs when the stock market falls over a
period of time.
• Stock indexes, like the Dow, allow investors to track the
progress of the stock market.
SOLE PROPRIETORSHIP
• A sole proprietorship is a business owned and
operated by an individual.
• Most businesses in the United States are sole
proprietorships.
• However, sole proprietorships account for a small
percentage of total sales in the U.S.A.
CORPORATION
• A corporation is a legal entity owned by individual
stockholders.
• A corporation is considered a separate entity apart from
its owners.
• As such, the corporation can be sued but individual
stockholders cannot be sued.
A business cycle is a period of macroeconomic
expansion followed by a period of contraction.
THE FOUR PHASES OF A BUSINESS CYCLE
There are four phases in a business cycle:
Expansion: a period of economic growth
Peak: the height of the expansion
Contraction: a period of economic decline
Trough: the lowest point of the contraction
RECESSIONS AND DEPRESSIONS
• Each phase of the business cycle is determined by
monitoring Gross Domestic Product.
• A contraction that lasts for at least six months is
called a recession.
• A particularly severe and long contraction is called
a depression.
THE EFFECT OF RISING PRICES
• Inflation- is a general increase in prices
• Over the years prices rise and fall, but
in the American economy they have
mostly risen
• Purchasing Power- the ability to
purchase goods and services
BONDS
• Bonds are loans.
• An investor loans money to a corporation or a
government.
• The corporation or government must repay the loan with
interest.
RISK AND PROFIT
• Investors risk their money hoping to make more money.
• High-risk investments are investments that are more
likely to fail.
• However, higher risk leads to greater profits.
Remember, trade-offs!
CHARACTERISTICS OF A GOOD TAX
• A good tax has the following characteristics:
• Simplicity
• Tax laws should be simple and easily understood.
• Economy
• Government administrators should be able to collect
taxes without spending too much time or money.
• Certainty
• It should be clear to the taxpayer when the tax is due,
how much is due, and how it should be paid.
• Equity
• The tax system should be fair, so that no one bears too
much or too little of the tax burden.
THREE USES OF MONEY
Money is a medium of exchange, a unit of
account, and a store of value.
As a medium of exchange, money measures
value during the exchange of goods and
services.
What is the value of a sweater?
MEDIUM OF EXCHANGE
• Anything used to determine value during the
exchange of goods or services
• Barter- the direct exchange of one set of goods
or services for another
MONEY, AGAIN
As a unit of account, money is a way to
compare the value of goods and services.
A more expensive sweater is considered
more valuable than a cheaper sweater.
Finally, money is a store of value. Money
holds its value even if it is not used though
inflation affects money.
SIX CHARACTERISTICS OF MONEY
Do we use pigs as money or paper as money?
How does a society decide?
There are six characteristics of good money.
Money should be portable, divisible, durable,
uniform, accepted, and have a limited supply.
Too much money in circulation means less
value.
• Inferior Goods- Goods for which
demand falls when income rises
• Durable Goods= goods that last for a
relatively long time(used car)
• Non-Durable Goods -that last a
relatively short period( paperback
book)
MARKET ECONOMY
• Economic system where decisions are based on
voluntary exchanges of the market
• U.S. is a market economy
CETERIS PARIBUS
• All other things being equal, only takes
price into account
• Fringe Benefits- a payment other than
wages or salaries
• Bank Run- more customers withdraw
money than the bank has on hand
REPRESENTATIVE MONEY
•
objects that have value and can be
exchanged for something else of value
• Example: IOU
FEDERAL RESERVE
• If the Fed wants to encourage banks
to loan out more of their money, it may
reduce the discount rate, making it
easier
• Federal Reserve Districts- !2
FDIC
• To make sure customers do not lose
money if a bank fails
VERTICAL MERGER
• A joining of two or more businesses involved in
different stages of producing the same good or
service
POSSIBLE SHORT ESSAY TOPICS
• Characteristics of Money
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Durability- must withstand wear and tear over time
Portability-can be easily transferred
Divisibility-must be easily divided into smaller denominations
Uniformity-must be easy to count and measure accurately
Limited- the right amount must be in supply
Accepted – people will accept for goods and services
• Functions of the Federal Reserve
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Serves Gov’t as nations banker
Serves banks by lending money
Regulates banking system
Regulates the money supply
POSSIBLE
• Functions of Money
• Medium of Exchange- determines value during exchange
of goods and services
• Unit of Account- provides a means of comparing values
• Store of Value- keeps its value over time
Characteristics of a Good Tax
Simplicity- should be easily understood
Efficiency- gov’t should be able to collect taxes easily
Certainty- clear when tax is due, and how it will be paid
Equity-tax system should be fair