Economics Review

Economic Systems

Types of Economic Systems Traditional – people produce & distribute goods according to custom  Tribes in Africa Command – the government makes all economic decisions  China, North Korea Market – individual choice & voluntary exchange direct decisions  U.S.

Supply and Demand

Economic definitions for DEMAND Demand: the total amount consumers are willing and able to buy at all prices.

Demand curve: the graphical representation of what consumers are willing and able to buy.

Law of Demand: As price increases/decreases, quantity demanded decreases/increases. PQPQ

Factors that cause demand to change or shift Tastes and fads Income Number of buyers Future price expectations Price and availability of:  Substitutes  compliments

Inelastic Demand: Price still moves up and down but Demand stays the same

Economic definition for SUPPLY Supply: the total amount of a good or service producers are able to make at all prices.

Supply curve: the graphical representation of a good or service producers are able to make at all prices.

Law of Supply: as price increases/decreases, quantity supplied increases/decreases PQPQ

Factors that cause a change in supply: Price of land, labor or capital Technology Number of other sellers Price of other goods I could produce Tax policy

Equilibrium Point: the point at which the quantity & the price are equal

Surplus & Shortage Surplus – Quantity supplied is greater then quantity demanded Supplied 10 ice cream cones but could only sell 4 You have a surplus of 6 cones!

Surplus & Shortage Shortage – Quantity demanded is greater then quantity supplied Supplied 4 ice cream cones but you had 10 customers You were short 6 cones!

IRDL When Supply & Demand shift: Increase in Supply/Demand = shift Right Decrease in Supply/Demand = shift Left Increase Right Decrease Left

Shift in Supply Lines

Shifts in Demand Lines

Business Cycle

Series of expanding and contracting economic activity. Stages:  Expansion  Peak  Contraction  Trough

Business Cycle Stages *Gross Domestic Product – all goods & services produced by a nation w/in a certain time Expansion – increase in the GDP; jobs increase, higher demand & prices Peak – where GDP reaches its highest point

Business Cycle Stages Contraction– GDP declines; producers cut back, resources become less scarce, prices stabilize, & unemployment rises  Recession – a contraction that lasts for six months or more  Depression – extended period of high unemployment & lower business activity Trough – point when GDP & employment stop declining