2.   Scarcity is everywhere!  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) Basic Economic Ideas

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