Unit II: Gross Domestic Product Gross domestic product/ GDP: total market value of all final goods and services produced within a country's borders within a given year. Gross national product/GNP: a measure of what citizens produce and whether they produce these items within a country's borders. GDP has four parts and these four parts are used to calculate it. The "C" stands for personal consumption expenditures, which are finished goods or services. 67% of the economy is spent on this section. The " I g " stands for gross private domestic investment. 17% of the economy is spent on this section. There are four things fall in this section: factory equipment maintenance new factory equipment construction of housing unsold inventories or products built in a year The "G" stands for government purchases of goods and services 20% of the economy is spent on this section. The " X n " stands for net export wh...
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Unit II: Circular Flow Models Circular flow- the flow of money, goods, services, and factors of production throughout an economy. There are three parts: Government- providers of public goods and services and demand of both private goods and services and the factors of production. Firms: organizations that produce goods and services for sale . Household- A person or a group of people who share income. Households earn the factors of productio n Product markets are where goods and services are bought and sold Factor markets and resource markets: where factors of production and resources are bought and sold
Unit II: Business Cycles Business Cycles : Fluctuations in economic activity that an economy experiences over a period of time. There are four sections: Expansion : a period of economic upturn when output and employment are rising. Peak : the highest point of real GDP. It is near or at full employment. Contraction / recession is where real GDP decreases for at least six months. T rough : the lowest point of real GDP. It has the least amount of spending and the highest unemployment. IMPORTANT INFO: One cycle is from trough to trough An average cycle is about five to seven years Recessions last about fourteen months Peaks and troughs are useless because we wont know we're in one until it's over A trough is the end of a recession If a recession loses more than 10% of real GDP it is a depression
Elasticity of Demand
Elasticity of demand- the measure of how consumers react to a change in price Elastic demand- demand that is very sensitive to a change in price. (E>1) Not a necessity. Inelastic demand- demand that is not sensitive to a change in price. (E<1). Is a necessity. Unitary demand- demand in a perfect world. (E=1) Finding the elasticity %change in quantity= new quantity-old quantity/ old quantity %change in price= new price-old price/ old price
Cost of Production
Fixed cost: cost that does not change no matter how much is produced Variable cost: cost that rises or falls depending upon how much is produced Total cost: fixed cost + variable cost Marginal revenue: the additional income from selling one more unit of goods Marginal cost: the cost of producing one more unit of goods Total revenue: price multiplied by quantity You must use these equations average total cost (ATC)= average fixed cost (AFC) +(AVC) average variable cost average fixed cost(AFC)= total fixed cost (TFC) / (Q) quantity ave rage variable cost (AVC)= total variable cost (TVC) / (Q) quantity average total cost (ATC)= total cost (TC) / (Q) quantity total cost (TC)=(TFC) total fixed cost + (TVC) total variable cost total fixed cost (TFC)= average fixed cost (AFC)(Q) quantity to total variable cost (TVC)= average variable cost (AVC)(Q)quantity total cost (TC)= average total cost (ATC)/(Q) quantity
Price Ceiling vs Price Floor
Price ceiling Vs Price Floor Price ceiling- A legal maximum price meant to help buyers, it keeps the price from getting to high (prevents price gauging) 4 Consequences of Price ceiling setting to low: A lower price for some consumers Shortages Long lines for buyers Illegal above the equilibrium Price Floor- T he lowest legal price a commodity can be sold at. (minimum wage) 4 Consequences of Price Floor: High product prices will help a few sellers A surplus Higher taxes Waste