ECON 2105 1nd EditionExam # 1 Study Guide Lectures: 1 - 7Lecture 1 (Module 5)- Supply and Demand Model- Price (interest rate, wages, federal funds rate, short/long term interest) and Quantity (labor amount, outputs (GDP), credits (funds))- Demand curve- show relationship between price of product and quantity demanded (negative slope) - Change in Demand- (shift) anything other than price related ex. Increase in salary- Change in Quantity Demanded- price related change resulting in a movement along the curve - Increase in demand is a rightward shift- Substitutes- decrease in the price of one leads to a decrease in demand for the other ex. IPhone/Galaxy - Compliments- decrease in the price of one good leads to an increase in demand of the other ex. Shampoo/ Conditioner - Inferior good- demand decreases when income increases - Normal good- demand goes up when income goes up - Changes in expectation- if people expect prices to go up in the future they will buy more now (self-fulfilling prophecy) Lecture 2 (module 6) - Supply Curve- a function showing the quantity of goods or services that supplierswould be willing to sell at a different price (upward sloping) - Movement along the curve- change in production due to change in the price of product- Shift of the curve- change in production due to anything other than price - Supply shocks o Technology innovations  productivity up o Change in price of inputs  cost of production o Taxes and subsidies  cost of production o Wages  cost of production o Union powers  cost of production o Change in government regulation  cost of production o Government regulations  cost of production o Cost of environmental protection  cost of production - Equilibrium- quantity demand is equal to supply there can be equilibrium price and equilibrium quantity - Surplus- when current price is greater than equilibrium price (prices will bringdown the quantity supplies) - Shortage- when price is less than equilibrium price (prices go up, excess demand) Lecture 3 (module 7) - Demand Shock- o Positive demand shock increases market prices and sales o Negative demand shock decreases market prices and sales - Supply Shock- o Positive supply shock will decrease market price and will increase sales (good) – is caused by better technology, government buys subsidies o Negative supply shock will increase (raise) market prices and will decreasesales – caused by hurricanes, oil spills - If Prices go up and quantity goes up  demand shock - If prices go down quantity goes down  demand shock - If prices go up and quantity goes down  supply shock - If prices go down and quantity goes up  supply shock - Supply and demand shock at the same time - Supply increases and demand increases: price- ambiguous, quantity- up- Supply increases and demand decreases: price- down, quantity- ambiguous - Supply decreases and demand increases: price- up, quantity- ambiguous- Supply decreases and demand decreases: price- ambiguous, quantity- down Lecture 4 (module 10) - GDP: market value of all final goods and services newly produced on domestic soil during a given time period o Goods and serviceso Final good/service o Made on domestic soilo Newly produced (this current year) - Does not include – intermediate goods and services, inputs, used goods- How to measure GDP: o Point of Sale: expenditure approach: GDP= C + I + X –IM Household purchases of goods and services (C): total expenditureson goods and services by households  Government purchases of goods and services (G): total expenditures on goods and services by federal, state, and local governments.  Investment Spending (I): spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories.  Exports (X): goods and services sold to other counties. Imports (IM): goods and services purchased from other countries. o At the point of product: product approach: GDP= C + I + X –IM: the sum of all the money spent in buying the output, (the value added per firm + value of sales – cost of intermediate goods) o Income approach: wages, interest, rent, and profit Lecture 5 (module 10 & 11) - Income approach: What is produced is also a measure of income o Wages/salary- compensation for workers who make production o Profits- compensation for self employed o Rents compensation for land owners o Interest- compensation for debt owners o Dividends- compensation for equity owners - Stock: a share in the ownership of a company held by a shareholder. These stockscan pay dividends (shares of profit).- Bond: borrowing in the form of an IOU that pays interest.- Government transfer: payment by the government to individuals for which no good or service is provided in return (Social Security). - Disposable income: total household income minus taxes; available to spend on consumption or to save.- Private savings: disposable income minus consumer spending (disposable income that is not spent on consumption).- Financial markets: the banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing. - Government borrowing: the total amount of funds borrowed by federal, state, and local governments in the financial markets.- Final goods and services: goods and services sold to the final, or end, user.- Intermediate goods and services: goods and services (bought from one firm by another firm) that are inputs for production of final goods and services.- Nominal variables, such as nominal GDP, have not been adjusted for changes in prices.- Real variables, such as real GDP, have been adjusted for changes in prices.- Economists usually are more interested in real GDP because increases in real GDPreflect increases in the standard of living.- Real GDP: the total value of the final goods and services produced in the economy during a given year, calculated using the prices of a selected base year. (reference year) - Nominal GDP: the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.Lecture 6 (module 12) - Measuring Unemployment- Focus on adult population (16 or older), who are in the labor force, and if they are employed (contributing to GDP) or unemployed - Within the labor