Business Cycles

Peak
Definition:The highest point of real GDP. It exhibits the greatest amount of spending and lowest unemployment. At this phase inflation becomes a problem.

Expansion
Definition: The recovery phase. Real GDP is increasing as a result of spending increasing and unemployment decreasing.

Recession/ Contraction
Definition: Real GDP drops for 6 months. In creasing unemployment and reduction is spending.

Trough
Definition: The lowest point of real GDP, which includes the highest amount of unemployment. Also contains the least amount of spending.

Important Things to Know About Supply

Total Revenue
Definition: The total amount of money a firm receives from selling goods and services.

• P x Q = TR        Price x Quantity = Total Revenue

Fixed Cost
Definition:A cost that does not change no matter how much is produced

• Examples: Rent, Mortgage, Insurance, and Salaries

Variable Cost

Definition: A cost that rises or falls depending upon how much is being produced.

• Example: Electricity Bill

Marginal Cost

Definition: The cost of producing one more unit of a good 

• New Revenue - Old Revenue

Elasticity of Demand

Definition: A measure of how consumers react to a change in price.

The Three Different Types

1. Elastic Demand: Demand that is very sensitive to a change in price.
• Product is not a necessity and there are available substitutes
• Always MORE than 1
2. Inelastic Demand: Demand that is not very sensitive to a change in price.
1. Product is a necessity, there are few to no substitutes.
2. People will buy no matter what.
3. Always LESS than 1
3. Unitary Elastic Demand
1. Always EQUAL to 1

How to calculate Price Elasticity of Demand (PED)

Step 1: Quantity

New Quantity - Old Quantity

             Old Quantity                  =% Change in Quantity Demand

Step 2:Price

New Price - Old Price

          Old Price                           = % Change in Price

Step 3: PED

% Change in Quantity Demand

       % Change in Price                = Price Elasticity of Demand (PED)

What Causes The PPC / PPF To Shift?

1. Technology changes
2. A change in resources 
3. Economic Growth
4. Natural Disaster/ War/ Famine
5. Change in the labor force
• Example: Unemployment
6. More education
• Example: Training( human capital)

Three Movements of the PPC

1. Inside the PPC: This occurs when resources are unemployed or unemployed.
2. Along the PPC: This occurs when the resources are used efficiently.
3. Shifts of the PPC: As shown below
• A shift to the right means an increase occurred.
• A shift to the left means a decrease occurred.

Recognizing Points on a Graph

Efficiency
Definition: Using resources in such a way as to maximize the production of goods and services.

Allocative Efficiency
Definition: Where the products being produced are the ones that are most desired by society.

Productive Efficiency
Definition: Products are being produced in the least costly way.

Under-utilization
Definition: Using fewer resources than an economy is capable of using.

X- Inside of the curve

1. Attainable, but inefficient
2. Under-utilization 

A, B, and C- On the curve

1. Attainable and efficient

Y- Outside the Curve

1. Unattainable at its current time frame

Production Possibilities

All of the following show the alternative ways to use an economy's resources.

1. Production Possibilities Curve (PPC)
2. Production Possibilities Frontier (PPF)
3. Production Possibilities Graph (PPG)

Four Assumptions of a PPG

1. Two goods
2. Fixed resources
• Examples- Land, Labor, Capital, and Entrepeneurship
3. Fixed technology
4. Full employment of resources

Trade-Offs

Definition: Alternatives that we give up whenever we choose one course of action over another opportunity.

• The next best alternative

Four Factors Of Production

Definition: Resources required to produce goods and services

The Four Factors

1. Land
• Natural resources
2. Labor
• Any work that is exerted
3. Capitals- Two types
1. Physical
• Examples- Tools, Factories, Machines
2. Human
• Examples- Skills, Abilities, Knowledge, and Talents
4. Entrepreneurship
• Being innovative
• Being a risk taker

Scarcity Vs. Shortage

Scarcity

Definition: The most fundamental economic problem that society has to face.

(How to satisfy unlimited wants with limited resources)

• Example- Oil

Shortage

Definition: Quantity Demanded is GREATER THAN Quantity Supplied.

Goods Vs. Services

Goods
Definition: Tangible commodities

The Types of Goods:

1. Capital good: Items used in the creation of other goods. 
• Example- Machinery and Factories
2. Consumer Good: Goods that are intended for final use by the consumer.
• Example- Cars

Services

Definition: Work that is performed for someone.

• Example- Barber shop

Needs Vs. Wants

Need

Definition: A basic requirement for survival.

• Examples:
• Food
• Water
• Shelter
• Clothing

Want

Definition: Desires Of the Citizens

• Examples:
• Luxury car
• Mansion
• Hover boards

Positive Vs. Normative Economics

Positive

• Definition: Attempt to describe the world as is.
• Very descriptive
• Collects and presents FACTS
• "What is"

Normative

• Definition: Attempts to describe how the world should be.

      "Ought to be"

                               }OPINIONS
       "Should be"

Macroeconomics

Definition of Macroeconomics:The study of the economy as a whole.

• Examples: 

• International Trade

• Supply and demand

• Minimum Wage