Economics Review Economic Systems Types of Economic Systems

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Economics Review

Economics Review

Economic Systems

Economic Systems

Types of Economic Systems n Traditional – people produce & distribute goods according to

Types of Economic Systems n Traditional – people produce & distribute goods according to custom ¨ Tribes n Command – the government makes all economic decisions ¨ China, n in Africa North Korea Market – individual choice & voluntary exchange direct decisions ¨ U. S.

Supply and Demand

Supply and Demand

Economic definitions for DEMAND n Demand: the total amount consumers are willing and able

Economic definitions for DEMAND n Demand: the total amount consumers are willing and able to buy at all prices.

n Demand curve: the graphical representation of what consumers are willing and able to

n Demand curve: the graphical representation of what consumers are willing and able to buy.

n Law of Demand: As price increases/decreases, quantity demanded decreases/increases. P Q

n Law of Demand: As price increases/decreases, quantity demanded decreases/increases. P Q

Factors that cause demand to change or shift n Tastes and fads n Income

Factors that cause demand to change or shift n Tastes and fads n Income n Number of buyers n Future price expectations n Price and availability of: ¨Substitutes ¨compliments

n Inelastic Demand: Price still moves up and down but Demand stays the same

n Inelastic Demand: Price still moves up and down but Demand stays the same

Economic definition for SUPPLY n Supply: the total amount of a good or service

Economic definition for SUPPLY n Supply: the total amount of a good or service producers are able to make at all prices.

n Supply curve: the graphical representation of a good or service producers are able

n Supply curve: the graphical representation of a good or service producers are able to make at all prices.

n Law of Supply: as price increases/decreases, quantity supplied increases/decreases P Q

n Law of Supply: as price increases/decreases, quantity supplied increases/decreases P Q

Factors that cause a change in supply: n Price of land, labor or capital

Factors that cause a change in supply: n Price of land, labor or capital n Technology n Number of other sellers n Price of other goods I could produce n Tax policy

n Equilibrium Point: the point at which the quantity & the price are equal

n Equilibrium Point: the point at which the quantity & the price are equal

Surplus & Shortage n Surplus – Quantity supplied is greater then quantity demanded n

Surplus & Shortage n Surplus – Quantity supplied is greater then quantity demanded n Supplied 10 ice cream cones but could only sell 4 You have a surplus of 6 cones! n

Surplus & Shortage n Shortage – Quantity demanded is greater then quantity supplied n

Surplus & Shortage n Shortage – Quantity demanded is greater then quantity supplied n Supplied 4 ice cream cones but you had 10 customers You were short 6 cones! n

IRDL When Supply & Demand shift: n Increase in Supply/Demand = shift Right n

IRDL When Supply & Demand shift: n Increase in Supply/Demand = shift Right n Decrease in Supply/Demand = shift Left n Increase Right Decrease Left

Shift in Supply Lines

Shift in Supply Lines

Shifts in Demand Lines

Shifts in Demand Lines

Business Cycle

Business Cycle

Business Cycle n Series of expanding and contracting economic activity. n Stages: ¨ Expansion

Business Cycle n Series of expanding and contracting economic activity. n Stages: ¨ Expansion ¨ Peak ¨ Contraction ¨ Trough

Business Cycle Stages *Gross Domestic Product – all goods & services produced by a

Business Cycle Stages *Gross Domestic Product – all goods & services produced by a nation w/in a certain time n Expansion – increase in the GDP; jobs increase, higher demand & prices n Peak – where GDP reaches its highest point

Business Cycle Stages n Contraction– GDP declines; producers cut back, resources become less scarce,

Business Cycle Stages n Contraction– GDP declines; producers cut back, resources become less scarce, prices stabilize, & unemployment rises ¨ Recession – a contraction that lasts for six months or more ¨ Depression – extended period of high unemployment & lower business activity n Trough – point when GDP & employment stop declining