1. Write down what you need to study.
Economics Review
This is to help refresh your memory & identify areas in which you need to study, not to re-teach you the concepts.
Write down what you need to study.
Ask questions!

2. Economics Review Major Areas of Study Economic Fundamentals
The basics about using resources
Microeconomics
Looking at resources at an individual level
Macroeconomics
Looking at resources at national economy level
International Economics
National economies exchanging resources
Personal Finance
Utilizing your resources (money in particular)

3. Scarcity, opportunity costs, trade-offs
Econ Fundamentals
Scarcity, opportunity costs, trade-offs
Scarcity = unlimited wants, limited resources
Trade-offs
Choices = gain something, give up something
Opportunity cost
What you give up when making a choice
Next-best alternative
Doing/buying one thing “costs” doing/buying another thing
It is never a dollar amount

4. Econ Fundamentals Productive Resources
Land = natural resources; nature’s gifts used to make G&S
Ex. Trees, ore, water, real estate
Labor = human effort in making G&S
Ex. Cooks, drivers, engineers, designers
Capital = processed items used to make G&S
>Physical & Human
Ex. Tools, equipment, training, experience
Entrepreneurship = those who risk putting land, labor & capital together to produce G&S

5. Each has advantages & disadvantages
Econ Fundamentals
Resource Allocation Strategies
Price
Majority rule
Contests
Force
Sharing
Lottery
Command
First-come, first-served
Personal characteristics
Each has advantages & disadvantages

6. Decision-making, marginal benefits/costs
Econ Fundamentals
Decision-making, marginal benefits/costs
Decision making = process of choosing
Cost-benefit analysis
Marginal benefit/cost = additional benefit/cost of a decision
Ex. Does the benefit of watching TV outweigh the cost of not doing homework
Rational decision-making = benefits outweigh costs

7. Production Possibility Curve
Econ Fundamentals
Production Possibility Curve
Shows trade-offs of producing one good over another
Inefficient use of resources
Impossible use of resources
Acres of corn
Acres of soybeans

8. Specialization, Voluntary exchange
Econ Fundamentals
Specialization, Voluntary exchange
Division of labor
We can’t make everything we need so we trade what we specialize in. That is called…
Non-fraudulent Voluntary Exchange
Non-fraudulent = honest
Voluntary = not forced

9. Econ Fundamentals Economic Systems
Economic system = how a society deals with scarcity by answering 3 questions:
What G&S will be produced?
How will these G&S be produced?
Who do we produce these G&S for?

10. Econ Fundamentals Types of Systems
Traditional – usually simple, agricultural
Command - Less private ownership, profit motive, consumer sovereignty, competition; more gov’t regulation
a.k.a. centralized, communism
Market – opposite of Command
a.k.a. capitalism, laissez-faire
Mixed - No economy is pure market or command
a.k.a. Socialism (right in the middle)

11. Econ Fundamentals
Types of Systems

12. Social & Economic Goals
Econ Fundamentals
Social & Economic Goals
Freedom: choice
Security: reduce risks – welfare
Equity: fairness, opportunity
Growth: growth – GDP
Efficiency: wise use of resources
Stability: certainty
We want more of all of them, but increasing one usually decreases another

13. Econ Fundamentals Public vs. Private G&S Redistribution of Income
Role of Gov’t
Public vs. Private G&S
Public: What market can’t/won’t provide
Ex. Roads, military, courts, fireworks show
Free riders: benefit w/o paying
Redistribution of Income
Property Rights: protected by the 5th Amend.
Market Failures
Externalities: positive & negative unintended consequences

14. Gov’t regulation/deregulation
Econ Fundamentals
Gov’t regulation/deregulation
Regulation: tends to help consumers, hurts producers
Deregulation: vice-versa
Examples
Monopolies
Safety features
Sin taxes

15. Econ Fundamentals Unit of output per unit of input Productivity
Higher productivity means growth, higher standard of living
Growth – measured as GDP
Education improvements, increasing experience & skill levels (human capital), more physical capital, improved technology
Productivity follows business cycle

16. Microeconomics Circular Flow Diagram Outside: monetary flow ($$$)
Inside: physical flow (G&S, FoP)
MONEY
Medium of exchange
Accepted as payment
Store of value
Constant worth
Unit of account
G&S are measured in units of money

17. Microeconomics Demand
LAW: All things being equal (ceteris paribus), as the price of a G&S increases, the quantity demanded by consumers decreases and vice versa
Inverse relationship
Demand Curve:
Down and to the right

18. Microeconomics Demand (& Supply)
A change in price results in the change of the quantity demanded
It is movement ALONG the curve (not a shift of the curve!)

19. Microeconomics Demand Remember IRDL the turtle!
A change in demand results in shift of the demand curve
Determinants
Income
Price of other goods
Inferior
Complementary
Substitute
# of consumers
Preference
Expectations
(I pee in P.E./IPNPE)
Remember IRDL the turtle!

20. Microeconomics Supply LAW: opposite of demand
Change in price vs change in quantity supplied

21. Microeconomics Supply Determinants Taxes & subsidies Gov’t regulation
Cost of inputs
Productivity
Technology
Expectations
Number (of sellers)
Ten girls can play tennis every night

22. Microeconomics Supply & Demand Equlibrium/Market clearing price
Surplus
supply > demand
Shortage
supply < demand
Elasticity – change in price, big change in demand/supply
Inelasticity – same change in price, little to no change

24. Price Floors/Ceilings
Microeconomics
Price Floors/Ceilings
Price Floor (can’t be lower)
Legally established minimum price
Minimum wage
Some producers can’t sell
everything (surplus)
Price Ceiling
Legally established maximum price
Rent control
Some consumers can’t buy
what they want (shortage)

25. Business organizations
Microeconomics
Business organizations
Sole proprietorship
+ Ease of start-up, full control & profits
- Owner liable, hard to raise capital, short-lived
Partnership
+ Ease of start-up, specialization, more capital
- All liable, potential for conflict
Corporation (stockholders, separate entity)
+ lots of capital, limited liability,
- Difficult to start, owners have little control

26. Macroeconomics Market Structures Monopoly Oligopoly
Single supplier (Amtrak, post office, utility, pro sports)
Oligopoly
A few, relatively large firms (Coke, Pepsi, Microsoft); barriers to entering market are high
Monopolistic competition
Large number of firms sell very similar products; barriers low (jeans)
Pure competition
Large number of small firms sell identical products (fruit & vegetables, eggs)

27. Measuring Economic Activity
Macroeconomics
Measuring Economic Activity
Real/ per capita GDP (C+I+G+XN)
Normal value of finished products made w/in borders
CPI (Consumer Price Index)
Market basket
Inflation, deflation
Unemployment
Cyclical – follows economy
Structural – do skills match openings
Frictional – transitioning

28. Measuring Economic Activity
Macroeconomics
Measuring Economic Activity
Business cycle
Expansion, contraction
Recession
Depression
DEBT VS. DEFICIT
Debt = what you owe over all years
Deficit =what you owe this year

29. Macroeconomics Federal Reserve Central bank
Promotes price stability, employment, reasonable rates of economic growth
Controls monetary supply through monetary policy
Open Market Operations
Buying/selling gov’t bonds
Discount Rate
Cost of loaning money
Reserve Requirements
How much can be loaned out
Fiscal Policy: gov’t taxation/expenditures

30. Macroeconomics Taxes Progressive = increases with income (income)
Regressive = same rate, larger chunk of poor’s income (sales)
Proportional = same % for everyone

31. International Economics
Trade
Absolute advantage
Difference in productivity
Comparative advantage
Difference in efficiency
About opportunity cost

32. International Economics
Trade Barriers Tariff – tax on imports Quota – limit on imports Embargo – ban on imports by another country Standards – requirements on imports Subsidies – Gov’t $ to help domestic businesses to compete

33. International Economics
Exchange Rate
British pound (£):
£.66 = $1 £1= $1.51
It would cost £6.60 to buy a $10 meal
(.66x10)
It would cost $15.10 to buy a £10 meal
(1.51x10)
The British pound is stronger than the U.S. dollar b/c it would cost a Brit less than £1.00 to buy $1.00

34. International Economics
Exchange Rate
2014 : $1 = £ : $1 = £0.66
The U.S. Dollar has appreciated/strengthened:
Fewer U.S. exports to UK b/c our goods cost more to them
Increased travel to UK b/c the US $ buys more
If the US Dollar depreciated/weakened:
More exports to that country
Less travel to that country

35. International Economics
Trade Blocs
Eliminate trade barriers amongst members
Examples:
European Union (EU)
North American Free Trade Agreement (NAFTA)
Association of Southeast Asian Nations (ASEAN)

36. International Economics
Free Trade
Arguments for free trade:
Lower prices
- Competition is good
Arguments against free trade:
Protect domestic industries, jobs
National security

37. Financial Institutions
Personal Finance
Financial Institutions
Banks earn money by loaning yours out at interest
Investments (greater the risk, greater the return)
Stocks: high risk, return
Bonds: low risk, return
Mutual Funds: lower risk, higher return

38. Personal Finance Auto-damage to, by vehicle
Insurance Types
Auto-damage to, by vehicle
Health-in case of major illness
Renter’s-repairs damage to rented property
Homeowners-repairs damage to house
Disability-in case of injury that prevents work
Life-in case of death

39. Premium: what you pay monthly for insurance
Personal Finance
Insurance Terms
Premium: what you pay monthly for insurance
Deductible: What you pay up-front when using your insurance
The higher the premium, the lower the deductible

40. APR: Annual percentage rate
Personal Finance
Credit Cards
APR: Annual percentage rate
what you pay in interest
Not paid if you pay card off every month
Annual fee: amount you pay to use card