ECN 222 1st EditionExam # 1 Study Guide Lectures: 1 – 10Have an understanding of the concepts and vocabulary below.What Economics is all about?ScarcityEconomics10 Principles of EconomicsPrinciples of how people make decisions1) People Face Tradeoffs2) The cost of something is what you give up to get it3) Rational people think at the margin4) People respond to incentiveIncentiveThe principles of how people interact5) Trade can make everyone better off6) Markets are usually a good way to organize economic activity7) Governments can sometimes improve market outcomes How the economy as a whole works8) A countries standard of living depends on its ability to produce goods and services9) Prices rise when the government prints too much money10) Society faces a short run tradeoff between inflationThe Demand CurveThe quantity demanded is the amount of a good that buyers are willing and able to purchaseLaw Of DemandDemand Curve: Downward slopingA change in price causes a movement along the demand curveNon-Price Determinants- # of buyersPQD- Income- Price of Related Goods- Tastes and preferences- ExpectationsDemand vs. Quantity DemandedChange in the quantity demandedDemand Curve Exercises (In notes)- Know how the graph moves and what it means Law of SupplyNon-Price Determinants- Change in determinants other than price shifts in the supply curve- # of sellers- ExpectationsSupply Curve: Upward slopingSupply vs. Quantity SuppliedSupply and Demand interacting togetherEquilibriumDisequilibriumShortageSurplusGovernment policies that alter the private market outcomePSQPrice CeilingPrice floorShortages and RationingThree Steps to analyzing changes in equilibrium to determine the effects of any event.1) Decide whether even shifts S curve, D curve, or both.2) Decide in which direction curve shifts3) Use Supply-demand diagram to see how the shift changes equilibriumPrice and QuantityPractice how to use the Model and the 3 steps to analyzeD D D P , Q P , Q P , Q P , QP ? , Q P , Q ? P , QP , Q ? P ? , QSSSRight is up, Left is downLong run aggregate supply = Af(L, K, H, N)Short run aggregate supplyAggregate Demand = consumption + Investment + Government + Net ExportsGross Domestic Product (GDP) = is the market value of all final goods and services produced within a country in a given period of timeFinal GoodsGoodsServicesComponents of GDPGDPus = Y =C + I + G + NXExports – Imports = Net ExportConsumption (C)Investment (I)Government purchases (G)Net Exports (NX) NX = Exports – ImportsGDP = Sum up P x Q for each goodPercentage Change = New-Old/Old X 100Real vs. Nominal GDPCalculating GDPReal GDP (RGDP) =Base Price x QuantityNominal GDP (NGDP) = Current Price x QuantityPercent Change = New-Old/old x 100GDP Deflator = 100 x nominal GDP/Real GDPInflation = New Deflator – Old Deflator/ Old Deflator x 100GDP and Economic Well-beingReview past notes and good