Ch 1 & Ch 2
◦The production possibilities curve shows the maximum quantity of goods and services that can be produced when the existing resources are used fully and efficiently.
Demand Curve/ Supply Curve
1.Movement along the curve(Change of Quantity Demanded/ Quantity Supplied): Price of this product (Demand Law / Supply Law)
a.Demand is the amount of a product that people are willing and able to purchase at each possible price during a given period of time.
b.The quantity demanded is the amount of a product that people are willing and able to purchase at one, specific price.
Law of Demand
c.As price of a good rises, consumers buy less.
d.As price of a good falls, consumers buy more.
e.Depicts the inverse quantity-price relationship with all else assumed to be constant.
Law of Supply
f.As the price of a product rises, producers will be willing to supply more, and vice versa.
g.The height of the supply curve at any quantity shows the minimum price necessary to induce producers to supplythat next unit to market.
h.The height of the supply curve at any quantity also shows the opportunity cost of producing the next unitof the good.
2.Shift of Demand/Shift of Supply
Shift of demand factors
·Number of buyers
oIf income goes up,demand goes up.
oShift demand to the right in the curve
oIf income goes down, demand goes down
oIt depends on the good
oNormal good: Income goes up, demand goes up
oInferior good: Income goes up, demand goes down
·Tastes and preferences
·Price of related goods:
oExample: Price for Netflix goes up, demand for cable goes up. Price of Netflix goes down, demand for cable goes down
oComplimentary good: Price for ink foes up, demand for printers goes down. Price for ink goes down, demand for printers goes up
Shift of supply
·Prices of related good and services: Cant focus in product, you have to shift
·Resource prices: How much are you paying for a product. You go with cheaper goods
a.Price for labor goes up, supply of pizza goes down because its expensive to produce pizza. Price for labor goes down, supply for pizza goes up.
b.Inversion supply: Shift of the supply to the left.
·Expectation of producers
·Number of producers
·Technology and productivity
Equilibrium is the price and quantity at which the quantity supplied and the quantity demanded are equal.
A market is said to be in disequilibrium at all points at which the quantities demanded and supplied are not equal.
Shortage or Surplus, how the market will adjust it
◦A surplus occurs whenever Qs>Qd.
◦A shortage occurs whenever Qd>Qs.
◦Surpluses and shortages can be resolved with price changes.
Private Sector vs. Public Sector
◦Households( Largest spending in the country): one or more persons who occupy a unit of housing.. Household spending is called consumption.
◦Business Firms: A business firm is a business organization controlled by a single management.
◦International Firms and Consumers
Industrial Countries have high per capita incomes
The economies of the industrial nations are highly interdependent
Developing Countries have low per capita incomes
Developing countries greatly outnumber industrial countries
◦Government: Government in the U.S. Exists at the federal, state, and local levels.
Trade Surplus/ Deficit
·Trade surplus: Not acquiring additional debt
·Trade deficit: Acquires debt( Imports are greater than exports)
What is GDP ?
◦Gross Domestic Product (GDP) is the market value of final goods and services produced within a country during a specific time period, usually a year.
Three Methods to measure GDP:
1.GDP as output: Q1*P1+Q2*P2
2.GDP as expenditure: GDP=Consumption Spending+ Gross Investment +Gov’t. Spending+ (Exports-Imports)
3.GDP as income
Gross investment= Net investment+ CCA
Nominal GDP vs. Real GDP
◦Nominal GDP is a measure of national output based on the current prices of goods and services.
◦Real GDP is a measure of the quantity of final goods and services produced, obtained by eliminating the influence of price changes from nominal GDP statistics.
Types of price indexes
◦Consumer Price Index (CPI)
◦Measures the impact of price changes on the cost of the typical bundle of goods and services purchased by households.
◦Producer Price Index (PPI)
◦A measure of the average prices received by producers for raw materials, intermediate, and final goods. The PPI used to be called the Wholesale Price Index (WPI).
◦GDP Deflator (GDP Price Index or GDPPI)
◦Is a broader price index than the CPI. It is designed to measure the change in the average price of all the goods and services included in GDP.
·Calculating reciprocal exchange rate
US $1 per pound=1.64
·When a currency appreciates/depreciates and how it impacts demand for goods/services in a country
A currency appreciates when people buy more, and it depreciates when they buy less
Exchange rate import and exports
Appreciaton of CAD= Exports to Canada goes up, US imports from Canada decrease
When there’s a new exchange rate USD= 0.70= CAD1
Depreciaton of CAD. US imports from Canada goes up, US exports to Canada decrease