1. ECONOMICS DPM REVIEW

2. Basic Economic Ideas
Scarcity is everywhere! (Unlimited needs/wants-Limited resources)
When a choice is made, the opportunity cost is the value of what is given up.
Therefore, all countries must make choices when answering the three economic questions.
What should be produced?
Who should produce them?
Who will get them?
The Factors of Production (FOPS):
Land (natural resources)
Labor (people working)
Capital (things businesses use to make money)
Entrepreneurship (people who invent things, for example)

3. The PPF
Shows the possible combinations of two goods that can be produced
Shows scarcity and opportunity cost: make more of one, give up some of the other
Points inside the curve are possible, but underutilizing resources
Points outside the curve are impossible for now, but might be in the future with technology advances

4. Supply and Demand
Demand curve: shows what consumers are willing and able to buy at various prices
Price goes up, quantity demanded goes down
Supply curve: shows what consumers are willing and able to by at various prices.
Price goes up, quantity supplied goes up

5. Supply and Demand
Markets will return to equilibrium without government interference
A price of $1 will create a shortage where the quantity demanded is greater that the quantity supplied.
Government imposed= price ceiling
A price of $3 will create a surplus where the quantity supplied is greater than the quantity demanded
Government imposed= price floor

6. Supply and Demand Determinants
Demand Curves will shift due to changes in:
Taste and Preferences of consumers
Income of consumers
Buyers (number of)
Expectations of Consumers
Related goods (price of)
Supplements and complements
Supply Curves will shift due to changes in:
Technology
Other goods (price of)
Number of Sellers
Expectations of Firms
Resource Prices
Subsidies and Taxes
Subsidy- “tax in reverse”

7. Shifting Supply and Demand Curves
INCREASE TO THE RIGHT
DECREASE TO THE LEFT

8. Circular Flow Model Remember:
Firms purchase stuff in the factor market
People purchase stuff in the product market
Below: Red arrows are physical flow and green arrows are monetary flow

9. Types of Economic Systems
Command
Total amount of government interference
Communism
Large amount of government Interference
Example- China, North Korea
Karl Marx
Socialism
Some government interference, government owns the FOPS
Capitalism
Market system with a amall amount of government interference
Example- United States
Free Market
No government interference
Adam Smith

10. The Business Cycle

11. Economic Indicators
GDP: total dollar value of all final goods and services produced in an economy in a year (measures the growth of the US economy by calculating output of businesses in America)
Types of Unemployment:
Seasonal
Structural
Frictional
Cyclical

12. American Fiscal Policy
Revenue: money taken in by the federal government, largest source of revenue- income taxes
Expansionary Fiscal Policy: Government lowers taxes and increases spending (practiced during contraction in business cycle)
Contractionary Fiscal Policy: Government raises taxes and decreases spending (practiced during inflationary period)

13. The Federal Reserve
Set up to regulate the US monetary policy and control the supply of American currency
Tools of the FED:
Discount Rate-Amount of interest The Fed charges member banks to borrow money
Reserve Requirement: Percentage of deposits that member banks are forced to hold onto
Open Market Operations: The Fed’s action of buying or selling US government securities

14. Money and Trade
Money is used as a unit of accounting when you compare prices of the same item at different retailers
Exchange Rate: the amount of foreign currency that can be bought with US currency (effects the price of imports)
Absolute Advantage/Comparative Advantage:
Absolute: country/company can make more of an item than another
Comparative: country/company can produce an item at a lower opportunity cost
Protectionism vs Free Trade: protectionists want barriers to trade while those in favor of Free Trade do not

15. LEVELS OF COMPETITION
Thus, the MARKET STRUCTURE for an American business depends on their unique competitive situation
There are 4 basic levels of competition
Pure Competition
Monopolistic Competition
Oligopoly
Pure Monopoly

16. Personal Finance
Tips for Credit Cards: Charge only what you can afford, pay your balance each month, stay away from cash advances)
Which pays more interest: checking or savings account
Are US Treasury Bonds typically seen as a safe investment