ECO 201 1st EditionExam # 1 Study GuideEconomics-A. Science of scarcity, which is there is so much matter in the universeto use.B. Best use of limited resources to satisfy unlimited wants and needs of humans (efficiency)Gross Domestic Product (GDP) - the indicator of the cycle of business.A. Private goodsB. Public goods C. Capital goodsD. Consumer goods*Because resources are scarce, goods and services are scare and need to be rationed.Production- using resources to make goods and services. Resources include-A. LandB. LaborC. CapitalD. Entrepreneurship *WTP- a buyer’s willingness to payDemand- (buyers)Supply- income and production (sellers)Market- a buyers and sellers exchange of money for benefits.Economic Systems: are legal, political, institutionalEconomic systems focus on positive economics and strive to answer three questions. 1. What to do with resources?2. How to produce resources3. Who gets the bread (resources)? *Normative is what you think something should be, whether it is right or wrong. It is your economical opinion.Capitalism- capitalized by private and corporate ownership of capital goodsSocialism- major industries are controlled and owned by the governmentDemand: buyer Free Markers (S=D) Supply: Sellers Goods and Services Intangibles and tangiblesEconomic SystemsFree marketsPrivate property rightsIncentive mattersDecentralized decisions 1-2-3Opportunity Cost “Real Cost” A. Highest valued alternative group given up when a choice is made. (Cost $ + “What would have been”) B. All choices have opportunity cost. WantsNeedsUnlimitedScarcity ResourcesLand(Wage) Labor(Interest) Capital(Owner) EntrepreneurshipTerms to studyProductionDemandSupplyEconomicsGDPOpportunity costScarcityCapitalism SocialismMarketsEfficiencyEquityExchangeLaw of demandQuantity suppliedQuantity demandedEquilibrium ShortagesSurplus Efficiency vs. equityEfficiencyA. More output with less resourcesB. Same output with less resourcesC. Highest valued use D. Lowest costEquityA. Who gets the breadB. Income distribution (poor can’t afford the price, therefore the rich pays for it) social justiceC. Employment1. Capitalism2. Income redistribution 3. Examples- rich/poor- welfare, working/elderly- social security, taxpayer/student- pell grants *Efficiency can increase opportunity, jobs, etc. - Cruel tradeoff equals more equitya. Less efficiencyb. Less GDPc. Higher unemployment*Production Possibilities gives us the maximum quantity of goods/services an economy can produce, which is GDP.A. Assumptions1. Assume full employment of resources2. Economy efficient3. No change in technology4. Simplify two goods (bread, roses) B. Scarcity- limits production, NO FREE LUNCH, C. Opportunity Costs- highest valued alternative given up to make a choice.D. Economic growth- increased productivity & more GDP with resources.Causes of Economic Growth?1. More resources2. Capital accumulation3. Better technology*Benefits occur when we exchange goods for money. Market: marginal benefit ≥ marginal costDemandLaw of Demand- price/quantity are inverse (ceteris paribus)*When price changes, Quantity demanded goes up or down not demand.-Demand curve shows buyers willingness to buy relating to their wants/needs.-Demand decrease- shifts to left | demand increases- shifts to right-Demand Shifters- T.I.N.E.A.RT- Taste and preferencesI – income after taxesN – Number of buyersE – Expected future pricesA – AdvertisementR – Related goods prices Supply-Equilibrium is when supply equals demand (D=S)-Equilibrium price- amount people are willing to but is equal to the amount sellers are willing to supply.- The number 1 is constant on graphs because it clears or balance markets. (D=S)-Disequilibrium- market does not clear. (D≠S). 1. Misallocation of resources2. Inefficient 3. Price is too low or too high-Shortage- quantity supplied is less than quantity demanded. Bad for producers. (Less sale/profit) (Unemployment), when shortages occur prices go up!-Surplus- quantity demanded is less than quantity supplied.-Price Controls- government implements these.1. Floor or subsidy- legal minimum price2. Ceilings- legal maximum price (creates shortage)3. *Equity**As demand goes up and there is not enough supply, we are willing to pay more for it.Supply Shifters- C.T.E.G.N.PC- CostT- TechnologyE- Expected future pricesG- Government policies (business tax, subsidy, regulations)N- Number of sellers (competition)P- Physical factors (weather) *supply and demand changes over