Unit I (Business Cycles)

• cycle occurs from trough to trough
• average cycle is 5 to 7 years
• recessions last about 14 months 
• peaks/ troughs are meaningless because we never know we are in one until it is over  
• trough means the end of a recession
• if a recession loses more than 10% of real GDP = depression 

• Peak:  highest point of real GDP

-exhibits greatest amount of spending and lowest unemployment  

-inflation becomes a problem 

• Expansion:  real GDP increases 

-"recovery phase" as a result of spending increases and unemployment decreases

• Contraction/ Recession:  real GDP declines

-increases unemployment

-reduction of spending

• Trough:  lowest point in the real GDP  

Unit I ( Demand and Supply)

Demand:  quantities that people are willing and able to buy at various prices

• The Law of Demand:  there is an inverse relationship between price and quantity demanded

• What causes a "change" in quantity demand ?"    - change in price

• What causes a "change in demand?" 

1. change in buyer's taste
2. change in number of buyers
3. change in income
4. change in price of related goods
5. change in expectations (future) 

Change in income:

1.  

   -Inferior goods: increase in income causes a fall in demand 

   -Normal goods: increase in income causes an increase in demand  

   Change in price of related goods: 
   
   

   -Complementary goods: goods that go together 

   -Substitute goods: goods that take place of another  

   Supply:  quantities that producers or sellers are willing and abe to produce at various prices 
   
   
   
   
   
   • The Law of Supply:  direct relationship between price and quantity  

1. • What causes a change in quantity supplied?  - change in price 

1. 1. change in weather
   2. change in technology 
   3. change in cost of production
   4. change in number of sellers
   5. change in taxes on subsidies 
   6. change in expectations 

Unit I (Price Ceiling and Price Floor)

Price ceiling: Below equilibrium

• Ex: rent control in San Francisco 

Price Floor:  Above equilibrium 

• Ex: minimum wage 

Unit I (Elasticity of Demand)

Elastic Demand: measure of how consumer's react to a change in price 

• Demand that is very sensitive to a change in price
• E > 1
• Product is not necessity 
• Available substitutes

Inelastic Demand: demand that is not very sensitive to change in price 

• E < 1
• Product is a necessity
• Few to no substitutes 
• People will buy no matter what 

Unitary Elastic/Unit: 

• E = 1

Price Elastic of Demand (PED):

• Step 1: Quantity 

new quality- old quantity/ old quantity 

• Step 2:   Price

         new price - old price/ old price

• Step 3:  PED

percent change in quantity demanded/ percent change in price 

-Always remember to take absolute value of PED

Revenue: total amount of $ from selling goods and services   

• Total Revenue: Price x Quantity = Total Revenue

Fixed Cost: cost that does not change no matter how much is produced Ex: rent, mortgage, and insurance

Variable Cost:  cost that rises or falls depending upon how much is produced 

• Ex: electricity

Marginal Cost: cost of production of producing one more unit of a good 

• new total cost- old total cost = Marginal Revenue

Formulas:

• Total Fixed Cost + Total Variable Cost = Total Cost
• Average Fixed Cost + Average Variable Cost = Average Total Cost
• Total Fixed Cost/ Quantity= Average Fixed Cost 
• Total Variables Cost/ Quantity = Average Variable Cost 
• Total Cost/ Quantity = Average Total Cost
• Total Fixed Cost = Average Fixed Cost x Quantity 
• Total Variable Cost = Average Variable Cost x Quantity 

Unit I (PPC/PPG)

Factors of Production: resources required to produce goods and services

• land 
• labor 
• capital(human/physical)
• Entrepreneurship 

Trade Off: Alternative that we give up when we choose one course of action over another 

                                                

Opportunity cost: next best alternative

• You give up something for a cost

Production Possibilities Curve(PPC): show alternative ways to use economies resources 

• Frontier(PPF)
• Graph (PPG)

4 assumptions of a PPG:

1. 2 goods
2. fixed resources( stay fixed)
3. fixed technology ( information and knowledge stays the same)
4. full employment of resources

Efficiency: using resources in such a was as to maximize the production of goods and services

Allocative Efficiency: products being produced are the ones that must be defined by society

Productive Efficiency: products being produced in least costly way

• Any point on the PPC curve 

Underutilization:using fewer resources than in economy is capable of using

3 Types of movement that occur within the PPC

• Inside the PPC: resources are unemplyed or underemployed
• Along the PPC: can shift along the curve
• Outside the PPC: unattainable 

Unit I (Introduction of Macroeconomics)

Macroeconomics vs. Microeconomics

• Macro: study of economy as a whole

           -international trade
          - supply and demand 
          - minimum wage

• Micro: study of individual or specific units of economy  

          -market structures
          -Business organizations 


Positive vs. Normative

• Positive: attempts to describe world as is 

          -"what is..."
          - collects and presents facts 

• Normative: attempts to prescribe how the world should be

          -"ought to be"
          -"should be" 
          - an opinion 

Needs vs. Wants

• Needs: Basic requirement for survival 

         - food
         -water
         -shelter
         -clothes

• Wants: Desire of citizens 

         -new car
        -new phone
       - extra money

Goods vs. Services:

• Goods: Tangible commodities

         -capital good: items used in the creation of other goods (machinery, trucks , and factories)
        -consumer good: goods that are introduced for final use by consumers

• Services: work preformed for someone 

        - Doctor's checkup