Basic Economics Concepts

1. Basic Economics Concepts Leo Koo, Chris Mendoza, Daniel Ye Period 4 Mr. Lohman

2. 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

3. 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

4. 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

5. 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

6. 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

7. Absolute Advantage • One individual or nation can produce more with the same resources as compared to another individual or nation

8. 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

9. Determinants of Supply • Cost of input resources • Technology and productivity • Producer expectations • Taxes or subsidies • The number of producers

10. 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)

11. 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

12. Market Equilibrium • The intersection point of a supply and demand graph, therefore where the quantity demanded equals the quantity produced

13. 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

14. 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

15. 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

16. 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

17. Growth • An increase in the production of goods and services in the economy over a period of time; therefore an increase in productivity