Economics: Unit 1-Chapter 8: Business Cycle

Expansion: Real output in the economy is increasing and the unemployment is declining.

Peak: Real output is at its highest point

Contraction/Recession Phase: Real output is decreasing and the unemployment is rising,

Trough: The lowest point of real GDP

-A cycle is from trough to trough.
-Average cycle is 6 months.
-Recessions last about 14 months. The bulk of a cycle is the growth stage.
-Peak: Trough are meaningless because we never know we are in one until its over.
-If a recession loses more than 10 percent of real GDP that its a depression.
-Trough means the end of a recession.

Economics: Unit 1-Chapter 3: Demand and Supply

Demand-The quantity the people are willing and able to buy at various prices.

The Law of Demand: There is an inverse relationship between price and quantity demanded.

• As price increases, quantity decreases.
• As price decreases, quantity increases.

"A change in price causes a change in quantity demanded."

Causes in the change in demand:

• Change in buyers taste (advertising)
• Change in the number of buyers
• Change in income
• normal goods
• inferior goods
• Change in the price of related goods
• substitute goods
• complimentary goods
• Change in expectation (things may change)

Supply-The quantities that producers or sellers are willing and able to produce/sell at various prices.

• As price increases, quantity increases.
• As price decreases, quantity decreases. 

The Law of Supply: There is an direct relationship between price and quantity supplied. 

"A change in price causes a change in quantity supplied."

Causes in the change in supply:

• Change in resource (factor) price; cost of production
• Change in technology/technique
• Change in taxes or subsides (money government provides)
• Change in prices of other goods
• Change in expectation
• Change in the number of suppliers

Elasticity of Demand

-Elastic Demand

• A product is elastic when demand change greatly given a small change in price.
• Many substitutes
• Luxary Goods
• Ex. Cars, Coke/Pepsi, Steak/Chicken
• Always Greater than 1

-Inelastic Demand

• A product is said to be inelastic if the demand for it will not change or it changes very little regardless of price.
• Few Substitutes
• Necessary
• Ex. Heart medicine, Gas, Salt, Milk
• Always less than 1

-Unitary Elastic (equal to 1)

To calculate the elasticity of demand:

• Step 1: Change in Quantity= (new-old)/old
• Step 2: Change in Price= (new-old)/old
• Step 3: Change in Quantity/Change in price

Price Floor: Minimum price for a good or service

• Excess demand (shortage)

Price Ceiling: Maximum price that can be legally charged for a good or service

• Excess Supplied (surplus)

Economics: Unit 1-Chapter 2: Factors of Production; Production Possibilities Graphs

Macroeconomics-Study of the major components of an economy (Inflation, GDP, unemployment, supply and demand)

Microeconomics-Study of how households and firms make decisions

Positive Economics-Tempting to describe the world as it is (Facts)
Normative Economics-Describes the world in how it should be; very prescriptive in nature (Opinion)


Wants-Desire's of citizens; much broader than needs
Needs-Basic requirements for survival

Scarcity-Most basic fundamental economic problem that all societies face

• Facing unlimited wants with limited resources

Shortage-A situation in which quantity demanded is greater than quantity supplied.

Goods-Tangible commadites (can be bought, sold, traded, and produced) 

• Consumer Goods-goods that are intended for final use by the consumer
• Capital Goods- items used in the creation of other goods such as factory machinery and trucks

Services-Work that is performed for someone else

Factors of Production (FoP):

1. Land (natural resources)
2. Labor
3. Capital
• Human Capital-The knowledge and skills a worker gains through education and experience.
• Physical Capital-Human made objects used to create other goods and services (tools, machinery, buildings)
4. Entrepreneurship 

Opportunity Cost-Most desirable alternative given up by making a decision (trade-of)

Production possibilities Graph (PPG)-shows alternative ways to use resources

                                    Curve (PPC)

                                  Frontier (PPF)

Productive Efficiency-Producing at the lowest cost, allocating resources efficiently, full employment or resources (any point on the curve)

Allocative Efficiency-Combination that is most desired by society (where to produce on the curve)

Law of Increasing Opportunity Cost-When resources are shifted from making one good or service to another, the cost of producing the second item increases.

• This occurs because not all resources are equally suited for the production of all goods and services.

4 Key assumptions of production possibilities:

1. Only 2 goods can be produces
2. Full employment of resources
3. Their are 4 fixed resources (land, labor, capital, entrepreneurship)
4. Fixed technology

Example of a PPG 

Graph Points

• Inside the Curve-attainable, but inefficient
• Result from war, famine unemployment, not using all available resources
• In the Curve-attainable and efficient
• Outside the Curve-Unattainable
• Attainable through advanced technology and economic growth