EOCT

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EOCT What I know, you need to know!

• Pay Attention!

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Scarcity

• Productive resources land, labor capital
• Factors of Production are limited
• Needs wants are unlimited
• Result is Scarcity

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Trade offs Opportunity Cost

• Rational Decisions are made by considering the
  Costs Benefits of the decision.
• Decision have trade-offs.
• The BEST alternative given up when you make a
  decision is the opportunity cost.

4
Specialization Division of Labor

• Individuals, Businesses Societies cannot
  satisfy all their needs wants.
• Result is specialization to maximize productive
  resources
• Specialization creates interdependence the need
  to trade exchange.
• Focus on what you do best trade for what
  someone else does well Both sides benefit!!

5
Production Possibilities

• We can analyze the opportunity cost of decisions
  by using a PPC two products X Y can be
  produce in varying amounts.
• More of x less of y, more of y less of x

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Economic Systems

• Systems have developed to answer economic
  questions what to produce, how to produce,
  allocating what is produced.
• Command systems (Socialism, Communism) govt.
  officials plan all economic activities.
• Market systems (Capitalism, Free Enterprise)
  individuals (producers consumers) make
  decisions free of govt. interference.

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Microeconomics study of individual markets.

• Circular flow illustrates our economy the flow
  of money, products resources.
• Demand the desire to own pay for a good.
• Law of Demand as price goes up, the quantity of
  the product demanded by consumers goes down.
• Supply the amount of goods in a given market
  (new cars, homes, shoes, etc.
• Law of Supply- as prices in a particular market
  increase, the quantity supplied of the product
  increases (more profit potential)

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Elasticity Shifts in Demand Supply

• Price changes affects the supply demand of
  products differently.
• Big changes in supply demand when prices change
  ELASTIC products.
• Little changes inelastic products.
• Factors other than price can affect Supply
  Demand.
• Demand can change at every price offered if
  population changes, tastes change, advertising,
  related products, subs, etc.
• Supply can change at every price if costs rise
  of fall (gas, wages), more competition, etc.

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Equilibrium Ceilings Floors

• When supply demand intersect on a graph, market
  is in equilibrium.
• Surpluses occur when supply exceeds demand.
• Shortages occur when demand exceeds supply.
• Ceilings are prices set BELOW equilibrium (rent
  control- consumers benefit)
• Floors are set ABOVE equilibrium (minimum wage-
  producers benefit)

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Market Structures

• Markets in which Businesses compete can be
  identified based on a number of factors number
  of firms, barrier to entry, etc.
• 4 structures
• Perfect Competition large of firms selling
  the same exact product / very easy to enter the
  market (wheat, corn)
• Monopolistic Competition many firms selling
  similar but not identical products / relatively
  easy to enter (fast food, nail salon, jeans,etc)
• Oligopoly a few large firms dominate. Very
  difficult to enter, just a few choices for
  consumers (Soft Drinks, Breakfast Cereals,
  Satellite TV, etc)
• Monopoly one firm in the market/ extreme
  barriers to entry. Total control over price, no
  choice for consumers (local electric co.)

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Business Organization

• Sole Proprietorship
• - Advantages total control or business
  profits
• - Disadvantages hard to raise money expand.
  Short lived.
• Partnerships
• - Advan. allows for specialization, less
  liability
• - Disadvan- disagreements, less profits, less
  control.
• Corporations
• - Advan raise lots of money fast, no personal
  liability for owners.
• - Disadvan- lose of control, profits are split
  among all stock owners.

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Macro study of entire economic system

• Economist use data to compare economies measure
  economic health.
• Most significant of these is GDP measure of all
  products and services produced in an economy in a
  given year.
• Expenditures used are C I G (X-M)
• Used products, intermediate products, underground
  non markets activities are excluded.
• Measures Final product services made in the
  U.S. only!!!

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Macro problems

• Recession 2 or more quarters of slow or
  negative GDP growth.
• Unemployment Cyclical, structural, seasonal,
  frictional
• Underemployment discouraged workers.
• Labor force those 16 older working or looking
  for work
• Inflation rising prices through an economy.
• Quantity, Cost Push, Demand Pull
• CPI measures a market basket of goods
  compares the current price with prices from
  previous years.
• CPI This years prices
• ----------------------------------------- X
  100
• Previous years prices

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Solving Macro Problems

• The FED conducts monetary policy.
• 3 Fed tools to affect aggregate Demand supply
• Open market operation increase or decrease
  money supply via the buying and selling of govt.
  bonds
• Open market committee changing the DISCOUNT
  RATE, the interest the FED charges to banks.
• Reserve Requirement adjusting the money banks
  must keep on hand (in reserve)
• The Govt. uses FISCAL POLICY tools Taxing
  Spending
• -Progressive Taxes affect wealthy people (income
  tax)
• -Regressive Taxes affect lower income people
  (sales tax)
• Govt. Spending Discretionary (change from year
  to year) Mandatory Spending (already budgeted
  by law)
• Taxing affects consumer demand, lower taxes
  more aggregate demand.
• Govt. Spending impacts the GDP.

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International trade

• Specialization among nations creates the need for
  TRADE.
• Both sides benefit by trade trade creates more
  efficient economic systems.
• Nations analyze the comparative advantages they
  to determine what they need to produce (export)
  vs. what they should trade for (import)
• Case Study Corn Wheat
• US 75 100
• Canada 60
  40
• U.S. has an absolute advantage producing both
  corn wheat.
• Our opportunity cost of producing 75 tons of corn
  100 tons of wheat
• The opp. Cost of producing 100 tons of wheat 75
  tons of corn.
• Canadas opp cost of producing 60 tons of corn
  40 tons of wheat
• Canadas opp cost of producing 40 tons of wheat
  60 tons of corn.
• We give up more by producing corn compared to
  Canada, so we need to import corn specialize on
  wheat production Canada the U.S. both benefit
  with more production.

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Trade Barriers/ Protectionism

• Trade Barriers usually intended to protect
  industries or firms of the country using them.
• Tariffs, quotas, VERs, standards, etc.
• Trade agreements treaties have been established
  to eliminate barriers create free trade zones
  partnerships.
• - NAFTA, ASEAN, the European Union are
  regions with very limited trade barriers.

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Exchange Rates

• When International Trade occurs nations exchange
  their currency for goods from another country.
• The value of a nations currency in relation to
  anothers is known as the exchange rate.
• Ex. One U.S. Dollar can be exchanges for (.70
  Euro), and I Euro can be exchange for (1.42)
• COSTS Benefits
• Strong Dollar cheap imports cheap expensive
  exports / travel is cheaper trade deficits
  increase.
• Weak Dollar expensive imports cheap American
  exports / travel is more expensive / trade
  surpluses may occur.

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Personal Finance

• Savings money put aside for later use, may earn
  a little return with small interests (Savings
  Account)
• Investments money that are paid to businesses
  with risk involved but potentially larger returns
  (Stocks)
• Banks offers services ranging from savings
  checking accounts, to credit other loans
  (mortgages) investments (money market
  accounts).
• Accounts are insured by the FDIC.
• Credit
• Simple interest is interest charged on just the
  principle of the loan ( Borrow 10,000 at .05
  annually 10,500
• Compound interest is charged on the principle
  any interest already charged. (1000 X 10
  1,100- Dont pay and next month you are
  charged 1,100 X 10 1,110. And so on .

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Investments

• Stocks ownership
• Stocks Pay dividends may increase in value for
  a CAPITAL GAIN
• Bonds represent a loan to the issurer of the BOND
  pay back the principle periodic interest to
  the bond holder.
• Investors are encouraged to DIVERSIFY their
  investments to lessen risk spreading money over
  many types of investments (Stocks Bonds)
• - Mutual Funds allow investors to buy share of
  the fund, pool money together with many
  investors to reduce risk. These funds are
  managed by professionals offer many differing
  returns.

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Insurance

• For the what ifs in life
• deductible- the amount owed out of pocket before
  insurance will pick up the tab in case of
  accident
• Premium- the amount owed each month to the
  insurance company in order to sustain coverage
• Remember, higher premiumlower deductible