Business Cycle:

• Expansion - Real output in the economy is increasing and the unemployment rate is declining
• Trough- it is the lowest point of real GDP
• Peak - Real output is at its highest point
• Contractionary or Recession Phase - real output is decreasing, and the unemployment rate is rising

Price ceiling/ Price floor

Price floor: minimum price for a good or service. Ex: minimum wage
Price ceiling: maximum price for goods or services. Ex: rent control

Supply and Demand:

Four basic laws of Supply and Demand:

1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.

Demand

Supply

Formulas:

Credit: Aldo Madrid

Elasticity of Demand

• Elasticity of Demand: is a measure of how consumers react to a change in price.
• Elastic Demand: demand that is sensitive to a change in price.

         - Substitutes: cars, soda, meats

         - Luxury goods: greater than 1

• Inelastic demand: demand that is not sensitive to a change in price

          Ex: gas, insulin, salt, water, milk

          *few substitutes

          * less than 1 

          * necessity 

• Unitary Elastic = 1

• Price elasticity of demand:

Step 1: change in quantity      new-old                                     EX:     40-50 = -.2

                                                   old                                                       50

Step 2: change in price      new-old                                                      6-4 = .5

                                               old                                                           4

Step 3: P.E.D change in quantity  quantity                                            -.2   = -.4  =  l .4 l (Inelastic)

                                                        price                                                .5

Production Possibility Curve

Inward (to shift down) :

1. Famine
2. War
3. Unemployment

Outward:

1. Producing for future

Production Possibility Curve #1

Law of Increasing Opportunity Cost:
-When resources are shifted from making one good or service to another, the cost of producing the 2nd item increases.
- This occurs because not all resources are equally suited for production of all goods and services.

4 key Assumption of Possibility Graphs:

1. Only 2 products can be produced
2. Full employment of resources
3. Fixed resources

      - Land
      - Labor
      - Capital
     4. Fixed Technology
   
A. Attainable but inefficient
B, C, & D. Attainable and efficient
X. Unattainable: 1) Technology 2) Economic Growth

Youtube: Production Possibilities Curve and Opportunity Cost

Factor of Production:

1. Land: natural resources

2. Labor: work force

3. Capital: - Human Capital: knowledge and skills a worker gains through education and experience.
   - Physical Capital: human made objects used to create other goods and services.

4. Entrepreneurship: inventive and risk taker.

-Opportunity Cost: most desirable alternative given up by making a decision.

- Production Possibility Graph (PPG): shows all alternative ways to use resources

- Production Possibility Front & Production Possibility Curve: is a graph that shows the various combinations of amounts of two commodities that could be produced using the same fixed total amount.

- Production Possibility Efficiency: producing resources at lowest cost; at any point on "Red" line

- Allocative Efficiency: combination must be desired by society (where to produce on curve)   

Macroeconomics- the study of how major components of the economy

-Inflation

-GDP

-Unemployment

-Supply & Demand

 Microeconomics- study of how households and firms make decisions and how they interact in the market.

Supply & Demand

Market structure

Positive economics- attempts to describe the world as it is.
-Ex: Minimum Wage laws= unemployment

Normative economics- it attempts to describe the world as it should be
-The government should raise minimum wage