Here are a few short animated clips to further understand this part of unit 1.


Business cycle: https://www.youtube.com/watch?v=jGP-vPEHRRE
Poverty Cycle: https://www.youtube.com/watch?v=a2wGaxV3rNY

Unit 1 01/21/16

Four Phases of the Business Cycle 

1. 
2. Peak- highest point of real GDP, exhibits highest spending and lowest and lowest unemployment. 
3. Expansion- real GDP increasing which is caused by an increase in spending and decrease in unemployment. 
4. Contraction/ Recession- real GDP declining for six months due to reduction in spending and increase in unemployment. 
5. Trough- lowest point of real GDP, exhibits least amount of spending and highest amount of unemployment 

PPG

Supply and Demand 

Unit 1 notes 01/06/16

Factors of Production

-The resources required to produce goods and services

1. Land- natural resources
2. Labor- work force
3. Capital- a.) Human Capital: skills b.)Physical Capital: tools, machinery, factories
4. Entrepreneurship- innovative and a risk taker

Trade-offs

- alternatives that we give up when we choose one course of action over another

Opportunity Cost

-Next best alternative

Production Possibility Graph (PPG)
-shows alternate ways to use an economics resources
PPF (frontier)
PPC (curve)

4 Assumptions of PPG

1. Two goods
2. Fixed resources (land, labor, capital, entrepreneurship)
3. Fixed technology
4. Full employment of resources (using all resources equally)

Efficiency -using resources in such a way to maximize production of goods and services

Auecative Efficiency- products being produced are one's MOST desired by society

Productive Efficiency-products are being produced in the least costly way, this in at any point on the Production Possibility Curve

Under utilization- Using fewer resources than an economy is capable of using

X: Inside the curve

• attainable but inefficient 
• under utilization

A, B, C: attainable and inefficient

Y: unattainable 

•  advantages in technology 

3 Types of Movement that occur withing a PPG 

1.  Inside PPC- occurs when resources are unemployed r underemployed (no productive efficiency)
2. Along PPC- movement within curve 
3. Shifts of PPC- curve can move 

What causes the PPC/PPF to shift? 

1.  advance in technology (Y)
2. change in technology
3. change in labor force 
4. economic growth
5. natural disaster/ war / famine 
6. more education and training 

Elasticity of Demand

- A measure of how consumers react to change in price 

3 Types: 

1. Elastic Demand- demand that is very sensitive to change in price. E>1 (always)
2. Inelastic- not very sensitive to change in price.  It is a necessity and people will buy no matter what, there are few or n substitutes. E<1
3. Unitary Elastic Demand- E=1

01/13/16 Notes

Elastics have substitutes. Ex:

• soda, steak, candy, fur coats

Inelastic have no or few substitutes. Ex:

• gas, salt, insulin/ medicine, milk, toothpaste

Price Elasticity Demand (PED)

Step 1. Quantity: New Quantity - Old Quantity

Old Quantity

Step 2. Price: New Price - Old Price

Old Price

Step 3. PED: Percentage Change in Quantity Demanded

Percentage Price in Change

Fixed Cost- a cost hat does not change no matter how much is produced

Ex: Rent, insurance, mortgage, salary

Variable Cost- a cost that rises or falls depending on how much is produced

Marginal Cost- cost of producing one more unit of a good

Ex: late fee

Unit 1 notes 01/05/16

Macroeconomics vs. Microeconomics

Macro- study of the economy as a whole 
Includes:

• international trade
• wage loss
• inflation

Micro- the study of individual or specific units of the economy

Includes:

• supply and demand
• market structures 
• business organizations

Positive Economics vs. Normative Economics

Positive Economics is FACTUAL & RELIABLE

• attempts to describe the world as is
• very descriptive
• collects and presents facts
• focuses on "what is"

Normative Economics is an OPINION

• attempts to describe how the world "should be"
• very descriptive in nature
• "ought to be"

Needs vs. Wants

Needs are the basic equipment for survival. (food, water, shelter, clothing)

Wants are the desires of the citizens.

Goods vs. Services

Goods are the tangible commodities.

1. Capital goods- items used in the creation of other goods
2. Consumer goods- goods intended for final use by consumer

Service is the work performed for someone.

Scarcity vs. Shortage

Scarcity is the most fundamental economic problem that all societies face.

• How to satisfy unlimited wants with limited resources.

Shortage is when quantity demanded > quantitative supplied.