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Economics Final Exam Review

Economics Final Exam Review. Unit 1: Fundamental Principles in Economics. Opportunity Cost. -The cost (value) of what is given u p when deciding between two a lternatives - Seen in PPC diagrams. Scarcity.

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Economics Final Exam Review

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  1. Economics Final Exam Review

  2. Unit 1: Fundamental Principles in Economics

  3. Opportunity Cost -The cost (value) of what is given up when deciding between two alternatives - Seen in PPC diagrams

  4. Scarcity • A Situation that exists when there are not enough resources to meet unlimited human wants

  5. Production Possibilities Curve (PPC) Represents: • How much of a good can be • produced (measures opp. cost) • The greatest combination of 2 • goods • - The limits of your industry

  6. Production Possibilities Curve PRODUCTION IMPOSSIBILITY C A K E S EFFICIENCY UNDERUTILIZATION COOKIES

  7. Underutilization Economic resources are not being used to their full potential, resulting in fewer goods and services

  8. Efficiency: • Economic resources are used to produce the maximum amount of goods and services

  9. WHAT IS PRODUCTION IMPOSSIBILITY? • ANY POINT OUTSIDE OF THE CURVE THAT CANNOT BE ACHIEVED

  10. Consumer Sovereignty • Consumers help determine • what gets produced by what • they buy Specialization: Focus efforts in one or a few areas to increase productivity

  11. Circular Flow of the Economy -shows ALL interactions in a market economy -money flows in one direction while products flow in the opposite direction

  12. Circular Flow Model

  13. Consumer Good: -tangible product intended for personal use by individuals Ex: cell phone, food, clothes

  14. Service -action performed for someone else Ex: haircutting, cleaning, nursing care

  15. Bull Market -stock market prices are rising Bear Market -stock market prices are falling

  16. Factors of Production: 1. Land: natural resources (oil, water, etc.) 2. Labor: human effort, skill in producing goods & services (workers)

  17. 3. Capital: tools & machines used in production (oven in a bakery) 4. Entrepreneurs: people who start businesses

  18. Three Basic Economic Questions • What to produce? • How to produce? • For Whom to produce?

  19. Capitalism/ Market Economy The Wealth of Nations Productivity-specialization Increases efficiency Invisible Hand-competition drives the market – everyone acts in their own best interest Gov’t Role – limited involvement in economy Trade- free trade makes nation wealthier – anti mercantilism Communism/Socialism The Communist Manifesto Das Kapital Tension between worker & owner would lead to revolt & create a new classless society Capitalism & Industrial Rev. Caused “wage slavery” Adam Smith vs. Karl Marx

  20. Three major Stock Exchanges in U.S. New York Stock Exchange (NYSE) NASDAQ American Stock Exchange (AMEX)

  21. 7. C represents Efficiency 8. B represents Impossibility 9. A represents Underutilization 10. Gain more resources

  22. Unit 2: Economic Systems

  23. Traditional Economy -decisions based on habit & custom -everyone has set role Market Economy -decisions made by producers & consumers -based on supply & demand Ex: USA, Hong Kong, UK

  24. Command Economy -decisions made by gov’t -centrally planned economy Ex: Cuba, North Korea

  25. Mixed Market Economy • mix of all three econ. systems • Ex: US is market based with • some government involvement • Most common type of economic • system today

  26. Capitalism -Factors of production are owned privately by individuals -market economy

  27. Communism -factors of production are owned by the government - Command economy

  28. Privatization -Process of transferring state owned property to individuals and businesses

  29. Nationalization -Process of transferring private ownership to public or government ownership

  30. Unit 3: Supply & Demand

  31. Law of Demand -price & quantity demanded are inversely related PD P D

  32. Law of Supply -price & quantity supplied are directly related P S P S

  33. Demand & Supply Curve: Movers vs. Shifters: MOVEMENT along the same curve when PRICE changes SHIFT to a new curve when something OTHER than price changes

  34. Elasticity of Demand: -Degree to which price changes affect quantity demanded Inelastic Demand -Change in price has little effect on quantity demanded Elastic Demand -Change in price has BIG effect On quantity demanded

  35. Factors that Determine Elasticity • Are there good substitutes? • Yes = elastic No = inelastic • What proportion of income does it use? • Large = elastic Small = inelastic • Is it a necessity or a luxury? • Luxury = elastic Necessity = inelastic

  36. Substitute -Item can be used in place of Something else (competitors) Ex: sugar & Splenda, Pizza & Sub Complement -Goods used together Ex: Hammer & nails, Xbox & Game

  37. Surplus • Supply is greater than demand • Shortage • Demand is greater than supply

  38. Fixed Costs (FC) -costs that are constant & Business must pay Ex: rent, fees, insurance Variable Costs (VC) -costs that can change as Productions levels change Ex: wages, shipping Total Costs = FC + VC

  39. Market Equilibrium -point where supply & demand curves meet Quant. Demanded = Quant. Supplied

  40. Elastic or Inelastic? 1. Water = 2 Inelastic 2. Coffee = 1. Elastic 3. Chocolate = 1. Elastic 4. Salt = 2. Inelastic

  41. Elastic & Inelastic Curves Inelastic Demand Inelastic Supply D B Elastic Supply Elastic Demand C A

  42. Supply & Demand for Hot Dogs S2 S1 $5 S1 $4 $3 $2 $1 D2 D2 D1 D1 800 200 400 600 1000

  43. Supply Curve SHIFTS with changes in: • - input costs • - technology • - productivity • - # of producers • Producer expectations • - Government Action

  44. Demand Curve SHIFTS with changes in: -Consumer Income -Consumer Taste/Popularity - Price of Substitutes - Price of Complements -Consumer Expectations -Market Size

  45. In the following questions, determine if the supply curve will Shift In (Left) (SL), Shift Out (Right) (SR) or Move Along the Curve (M). _____ 1. What will happen to the supply curve for iPads if Apple lowers the selling price of them? _____ 2. What will happen to the supply curve for automobiles if Nissan were to leave the auto industry? _____ 3.. What will happen to the supply curve for solar panels if the federal government rejects a subsidy to help pay for the costs? _____ 4.. What will happen to the supply curve for pizza if Edie’s raises the prices of its pizza? _____ 5. What will happen to the supply curve if Moog workers become more efficient? M SL SL M SR

  46. Supply for National Fuel S1 S2 $30 $25 $20 $15 $10 $5 600 800 1000 1200 200 400

  47. In the following questions, determine if the demand curve will Shift In (Left) (SL), Shift Out (Right) (SR) or Move Along the Curve (M). ____ 1. What will happen to the demand curve for IBM if they lower the price of their PC’s? ____ 2. What will happen to the demand curve for bottled water if there is a hot week forecasted? ____ 3. What will happen to the demand curve for chocolate the week leading up to Valentine’s Day? ____ 4. What will happen to the demand curve for Sabres Jerseys at the beginning of the NHL Season? M SR SR SR

  48. Demand For Lipton Iced Tea $5 $4 $3 $2 $1 D2\ D1 200 400 600 800 1000 1200

  49. Are the following Substitutes (S) Or Complements (C)? S 7._____ Paperback book and ebook 8._____ Cellphone and a charger 9._____ Hot dogs and Hot dog buns 10._____ Coffee and tea C C S

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