Economics
how we deal with scarcity
scarcity
when there is enough demand for something but not enough of it
GDP
Gross domestic product
Factors of Production
land, labor, and capital
Land
natural resources
labor
human input
capital
stuff that produces other stuff (electrical grids, hammers, etc.)
PPC
Production Possibilities Curve
C=inefficiency D=impossible
growth in section A but not B
PPC of a poor country receiving loans (showing that loans help it grow)
reason why the PPC line is bent
factors of production are specialized
single most important model in Economics
Supply and Demand
information the demand curve holds
how much of something people are willing to buy at certain prices
typical demand curve
demand curves in markets insensitive to prices
demand curve in market completely insensitive to prices
demand curve with price ceiling
signature feature of a demand curve
it always has a downward slope
things that change demand
taste and preferences, income, price of related (“complement” or substitute) goods, and population
effect of change in quantity demanded on a demand curve
the point moves along the curve
effect of change in demand on demand curve
the entire curve is changed
demand curve with change in quantity demanded
demand curve with change in demand
horizontal intercept in demand line equation
slope in demand line equation
indicator of whether the equation is for a supply or demand curve
Supply shifts
price of inputs, technology, number of sellers, and price of related goods (complements and substitutes)
effect of change in the quantity of supply
moves the point along the line; this occurs due to a change in price
effect of change in supply on the supply curve
the entire line moves
supply and demand’s effect on each other
supply and demand don’t affect each other
complements in production
two products that are produced at the same time
substitutes in production
If a company makes Good A, they can’t make Good B.
equilibrium on a supply and demand graph
equilibrium
the point that supply and demand curves will move towards and stay at once reached
definition of gross domestic product
market value of all final goods and services produced in a year
GNP
Gross National Product
difference between GDP and GNP
GNP counts operations of a company based in a certain country, even if some operations take place in another country; GDP only counts operations in the same country
How to find the equilibrium price and quantity of a supply and demand curve
Set the supply curve equation and the demand curve equation equal to each other to find Q’s value, then plug it back into the original to find P.
effect of a tax on a supply and demand curve
the supply line vertically shifts upward the monetary amount of the tax
graph of a shortage
quantity supplied on a shortage graph
quantity demanded on a shortage graph
two examples of how shortages can be created
by a price ceiling or an increase in income but not supply
how to calculate the size of a shortage
Substitute the price ceiling for P in the demand and supply curve equations to calculate Q for both, then subtract supply’s Q from demand’s Q.
real GDP
GDP adjusted for inflation
problem with GDP
it doesn’t record products that don’t officially go to market
things GDP misses
home production, crime, nonreported cash payments and leisure time
labor equilibrium
full employment
classical school thoughts on unemployment
it is a temporary disequilibrium and a result of wages being too high
NX
net exports
how to calculate net exports
exports-imports (X-M)
MPC
marginal propensity to consume
definition of marginal propensity to consume
additional consumption generated by additional income
MPS
marginal propensity to save
value range of marginal propensity to consume
0<MPC<1
written consumption function
c=a+bY
graphed consumption function
a (in consumption function)
y-intercept
Y (in consumption function)
income
b (in consumption function)
MPC (slope of the consumption function)
aggregate spending
C+I+G
C (aggregate spending)
consumption
I (aggregate spending)
firms
G (aggregate spending)
government spending
investment
a change in capital stock
graph of a surplus
price floor on a surplus graph
quantity demanded on a surplus graph
quantity supplied on a surplus graph