The Business Cycle

Peak: highest point of real GDP (this where you have your greatest spending and lowest unemployment) in this phase inflation is a problem

Expansion: where real GDP is increasing (spending increases and unemployment decreases) 

Contraction/ recession: where real GDP declines for six months (increasing unemployment and reduction in spending) 

Trough: lowest point of real GDP (highest unemployment and least spending) 

Elasticity of Demand

Elasticity of Demand

A measure of how consumers react to a change in price 

elastic demand: demand that is very sensitive to a change in price

E>1

The product is not a necessity and there are available substitutes

inelastic demand: demand that is not very sensitive to a change in price 

E<1

The product is a necessity and there are a few substitutes and people will buy no matter what

unit/unitary demand

E=1

How to calculate price elasticity of demand (PED):

1. Have to calculate the quantity(new quantity-old quantity/ old quantity)
2. Price (new price-old price/ old price)
3. PED (percentage change in quantity demanded/ percentage change in price*100)

*the first four minutes of this video are helpful explaining the difference between elastic and inelastic demand

Total revenue: the total amount of money a form receives from selling goods and services (p*q=tr)

Fixed cost: a cost that doesn't change no matter how much of a good is produced (mortgage, rent, insurance) 

Variable cost: a cost that rises or falls depending upon how much is produced 

Marginal cost: cost of producing one more unit of a good 

Formulas:

TFC+TVC=TC

AFC+AVC=ATC

TFC/Q=AFC

TVC/Q=AVC

AFC*Q=TFC

AVC*Q=TVC

new TC-old TC=MC

TC/Q=ATC

PPC Graphs

Factors of Production: resources required to produce goods and services

1. Land (natural resources)
2. Labor (work force)
3. Capital (physical/ human)
4. Entrepreneurship (innovative/ risk-taker)

Trade-off: alternatives that we give up whenever we choose one course of action over another

Opportunity cost: form of a trade-off; the next best alternative

Production Possibilities Curve/Graph/ Frontier (PPC/G/F)

shows the trade-offs of a society based on technology and resources

There are 4 Assumptions of a PPC:

1. there are 2 goods
2. fixed resources
3. fixed technology
4. full employment or resources

1. Efficiency: using resources in such a way to maximize the production of goods and services.
2. Allocative efficiency: the products being produced are the ones that are most desired by society.
3. Productive efficiency: products are being produced in the least costly way and this is any point on the (PPC).
4. Underutilization: using fewer resources than the economy is capable of using.

Three types of movement that occur within the (PPC):

1. Inside the (PPC)- occurs when resources are unemployed or underemployed(means we have no productive efficiency)
2. Along the (PPC)-can move in both directions
3. Shifts of the (PPC)- 

Increase:

Decrease:

*What causes the (PPC) to shift?

1. Due to technological change

2. Change in resources

3. Economic growth

4. Change in the labor force

5. Natural disasters/ war/ famine

6. More education (human capital)

Inside the curve->underutilization, attainable/inefficient

On the curve->attainable/ efficient

Outside the curve-> unattainable w/ current resources

Intro to AP Macroeconomics

Macroeconomics

the study of the economy as a whole

• minimum wage 
• international trade
• supply/ demand

Microeconomics

study of the individual or specific units of the economy

• market structure

Positive Economics

Claims that attempt to describe the world as is

• collects and presents facts
• "What is"

Normative Economics

Claims that attempt to describe how the world should be

• Opinion
• "Ought to be/ Should be"

Needs

Basic requirements for survival

• (food, water, shelter, clothing)

Wants

Desire of citizens

Goods 

Tangible commodities

• (bought, sold, produced)
• Capital good: items used in the creation of other goods (factory machines/truck)

Services

Work that is performed for someone

Scarcity

The most fundamental economic problem that all societies face

• Trying to satisfy unlimited wants with limited resources

Shortage

Quantity demanded is greater than quantity supplied

*Here is a video that can explain the difference between scarcity and shortage if you are still confused.