Basic Economics Concepts Leo Koo, Chris Mendoza, Daniel Ye Period 4 Mr. Lohman

Scarcity “Limited quantities of resources to meet unlimited wants.” Limited resources of the world Economics is the process of allocating the limited resources of the world

Trade-offs Given that resources are scarce it is implied that we face trade-offs Trade-offs: accepting less of one thing in order to get more of something else

Opportunity Costs The next best alternative that is given up in exchange for the better alternative “There is no such thing as a free lunch” Ex: Going to the movies in exchange for study time

Production Possibilities Curve/Frontier (PPC or PPF) An economic model demonstrating scarcity, trade-offs, and opportunity costs A=Impossible at the current production level B=Underutilization

Comparative Advantage One individual or nation can produce a good at a lower opportunity cost than another Specialization- Production of one good due to its lower opportunity cost

Absolute Advantage One individual or nation can produce more with the same resources as compared to another individual or nation

Supply The quantity firms are willing and able to produce at a range of prices Law of Supply-As the price of a good increases, the quantity produced increases

Determinants of Supply Cost of input resources Technology and productivity Producer expectations Taxes or subsidies The number of producers

Demand The quantity consumers are willing to purchase at a range of prices Law of Demand-As the price of a good increases, the quantity demanded decreases (Inverse Relationship)

Determinants of Demand Consumer Income Price of a substitute good Price of a complementary good Consumer tastes and preferences Consumer expectations The number of consumers

Market Equilibrium The intersection point of a supply and demand graph, therefore where the quantity demanded equals the quantity produced

The Business Cycle The fluctuations in economic activity (GDP) over several months or years Recession-An instance of sustained decline in GDP Expansion-Period of economic recover and increase in GDP

Unemployment Those who are jobless and are actively looking for work are considered unemployed Discouraged workers-unemployed workers who have stopped trying to find jobs

Types of Unemployment Cyclical Unemployment – Unemployment due to fluctuations in the business cycle Frictional Unemployment – The transition of a worker from one job to another Structural Unemployment – A mismatch between the demanded skills and the skills of a worker Seasonal Unemployment – Unemployment due to the changes in season

Inflation A sustained increase of prices over a period of time Often measures by the Consumer Price Index (CPI) Stagflation-A decrease in output (RGDP) as prices and unemployment increase Hyperinflation-A rapid increase in prices due to the rapid decrease in the value of a currency

Growth An increase in the production of goods and services in the economy over a period of time; therefore an increase in productivity