Post on 23-Dec-2015
Basic Economics ConceptsLeo Koo, Chris Mendoza,
Daniel YePeriod 4 Mr. Lohman
Scarcity• “Limited quantities of
resources to meet unlimited wants.”
• Limited resources of the world
• Economics is the process of allocating the limited resources of the world
Trade-offs
• Given that resources are scarce it is implied that we face trade-offs
• Trade-offs: accepting less of one thing in order to get more of something else
Opportunity Costs
• The next best alternative that is given up in exchange for the better alternative
• “There is no such thing as a free lunch”• Ex: Going to the movies in exchange for study
time
Production Possibilities
Curve/Frontier(PPC or PPF)
•An economic model demonstrating scarcity, trade-offs, and opportunity costs•A=Impossible at the current production level•B=Underutilization
Comparative Advantage
• One individual or nation can produce a good at a lower opportunity cost than another
• Specialization-Production of one good due to its lower opportunity cost
Absolute Advantage
• One individual or nation can produce more with the same resources as compared to another individual or nation
Supply• The quantity firms are
willing and able to produce at a range of prices
• Law of Supply-As the price of a good increases, the quantity produced increases
Determinants of Supply
• Cost of input resources• Technology and productivity• Producer expectations• Taxes or subsidies• The number of producers
Demand• The quantity consumers
are willing to purchase at a range of prices
• Law of Demand-As the price of a good increases, the quantity demanded decreases (Inverse Relationship)
Determinants of Demand
• Consumer Income• Price of a substitute good• Price of a complementary good• Consumer tastes and preferences• Consumer expectations• The number of consumers
Market Equilibrium
• The intersection point of a supply and demand graph, therefore where the quantity demanded equals the quantity produced
The Business Cycle
• The fluctuations in economic activity (GDP) over several months or years
• Recession-An instance of sustained decline in GDP
• Expansion-Period of economic recover and increase in GDP
Unemployment• Those who are jobless and are actively looking for
work are considered unemployed• Discouraged workers-unemployed workers who have
stopped trying to find jobs
Types of Unemployment
• Cyclical Unemployment– Unemployment due to fluctuations in the business
cycle• Frictional Unemployment– The transition of a worker from one job to another
• Structural Unemployment– A mismatch between the demanded skills and the skills
of a worker• Seasonal Unemployment– Unemployment due to the changes in season
Inflation• A sustained increase of
prices over a period of time• Often measures by the
Consumer Price Index (CPI)• Stagflation-A decrease in
output (RGDP) as prices and unemployment increase
• Hyperinflation-A rapid increase in prices due to the rapid decrease in the value of a currency
Growth
• An increase in the production of goods and services in the economy over a period of time; therefore an increase in productivity