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Economics EOCT Study Guide
Transcript of Economics EOCT Study Guide
Fundamental Economic Concepts
Economics EOCT Study Guide
Scarcity is simply a fundamental economic problem of having unlimited human wants when there are limited resources.
The three basic questions of Economics are WHAT, HOW, and WHOM?
More specifically, they are:
What is to be produced?
How is it to be produced?
For whom is it being produced for?
Three questions of Economics
The three factors of production are land, labor, and capital. These are the inputs required to make goods.
Land - Any natural resource involved
Labor - Any workers
Capital - Money and man-made resources
Factors of Production
Microeconomics deals with everything individuals deal with in economics, such as supply, demand, prices, business organizations, and market structures.
Supply is the amount of a good available.
The law of supply states that as a price of a good goes up, the supply will, too.
Factors affecting supply are cost of inputs, productivity, technology, taxes, subsidies, expectations, government regulation, and number of sellers.
Demand is the desire for a product, and the willingness and ability to pay for it.
The law of demand states that as the price of a product goes up, the demand goes down.
The factors affecting demand are consumer income, number of consumers, substitutes, change in expectations, complements in goods, and consumer tastes.
The amount of money paid to acquire a given product.
Price ceiling - Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.
Price floor - A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product. A price floor must be greater than the equilibrium price in order to be effective.
A trade off is a situation in which you lose something from making a choice and gaining something else.
An Opportunity Cost is the benefit from the choice(s) you passed up from a trade off.
Example: Buying a ticket to a concert instead of a sweater. This is a trade off.
The warmth of the sweater is the opportunity cost.
Trade Offs and Opportunity Costs
There are four main economic systems. They are command, market, traditional, and mixed. Command economies are mainly government controlled, and there isn't much freedom. Market economies are controlled by the people. Traditional economies are based on what people in the past have done. And Mixed is a combination of both market and command.
The 7 goals are:
Economic freedom - the freedom for own decisions
Economic security - protection from bad economic events
Economic equality - justice and fairness
Price stability - inflation limitation
Economic efficiency - resources are scarce, so they should be used wisely
Economic growth - more growth, more people involved
Full employment - everyone wants jobs
Economic and Social Goals
Circular Flow Chart
The types of business organizations are sole proprietorship, partnerships, and corporations. A sole proprietorship is all under one person, and they have unlimited liability. A partnership is with two business partners, and each partner has limited liability. A corporation is run by many, and everyone has limited liability.
The different types of market structures are perfect competition, monopolistic competition, oligopoly, and monopoly.
Macroeconomics is everything in economics dealing with the larger economy. It includes things such as GDP, the business cycle, unemployment, and CPI.
GDP is Gross Domestic Product. It is the market value of all officially recognized final goods and services produced within a country in a year. A few types of goods, such as illegal goods are not included in calculating GDP.
The formula for GDP is:
GDP = C + I + E + G
C = consumer spending
I = industry investment
E = excess of export over import
G = government spending
CPI (Consumer Price Index) measures changes in the price level of a market basket of consumer goods and services purchased by households.
Unemployment is simply when people are not employed at a job. The types are structural unemployment, seasonal unemployment, cyclical unemployment, and frictional unemployment.
Structural is due to lack of skills.
Cyclical is due to economic contractions
Frictional is from transitions by workers
Seasonal is from jobs only at certain parts of the year
Business cycle refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles
Fiscal policy is the use of government taxation and spending to influence the economy.
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability
International economics deals with economic ideas that involve two or more countries. The ideas used in this section are absolute/comparative advantages, trade barrier, free trade, trade blocks, and exchange rates.
Absolute advantage is when one country can produce a specific good more efficiently than another. Comparative advantage is when a country can produce a good more efficiently with a lower opportunity cost.
The price of a nation’s currency in terms of another currency is an exchange rate. Appreciation and depreciation are terms used to describe increase and decrease in currency in specific countries.
A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.
Examples include the EU, NAFTA, and ASEAN.
Protectionism is the government practice of restricting imports and exports between one country and another. Tariffs are sometimes placed on imports or exports, raising the price for doing such things. In contrast, free trade removes such restrictions.
Free Traders vs Protectionist
Trade barriers are measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services. Not everything that prevents or restricts trade can be characterised as a trade barrier.