1/27/17: GDP & GNP

• Gross Domestic Product (GDP)
• Total value of all final goods & services produced within a country's borders in a given year.
• Includes all production or income earned within the U.S by U.S & foreign producers.
• Excludes production outside the U.S even by Americans.
• Gross National Product (GNP)
• Total value of all goods & services produced by Americans in a given year.
• Includes production or income earned by Americans anywhere in the world. 
• Excludes production by Americans even in the U.S
• GDP
• C + Ig + G + Xn
• Consumption
• Purchases of goods & services (final)
• 67% of economy
• Ig (Gross Private Domestic Investment)
• Construction of new housing, new factory equipment, factory equipment maintenance, unsold inventory of products built in a year.
• 17% of economy
• G (Government Spending)
• 18% of economy
• ex) school buses, highways

• Xn (Net Exports)
• Exports - Imports
• -2% of economy

• Included in GDP-
1. C
2. Ig
3. G
4. Xn
• Excluded from GDP-
1. Intermediate goods (avoid double or multiple counting)
2. Used or secondhand goods (avoid double counting)
3. Unreported business activities (tips)
4. Stocks & bonds
5. Non-market activity
6. Illegal Activities (underground/black market- prostitution, drugs)
7. Gifts or transferred payments (public or private) ex- scholarships, social security, unemployment.
• Stocks & Bonds
• Purely financial transaction, nothing is being produced.
• Net Domestic Product
• GDP - Depreciation 
• Net National Product
• GNP - Depreciation
• Depreciation
• Loss of value of capital equipment due to normal wear & tear.
• Gross Investment
• Net Investment + Depreciation
• GNP
• GDP + Net foreign factor payment
• Net Exports
• Exports - Imports

1/19/17: Supply & Demand Graphs

Supply & Demand Graphs

• Equilibrium: Point at which the supply curve intersects with the demand curve
• Excess Demand: Occurs when… Quantity Demanded  > Quantity Supplied
• This will result in a shortage

• Shortage: Consumers can’t get quantities of items they want
• Price Ceiling: Creates shortage
• When government puts a legal limit on how high the price of a product can be.
• Ex) Rent control

• Excess Demand: QD > QS
• Excess: Occurs when quantity supplied is greater than quantity demanded.
• Results in surplus

• Surplus: Producers have inventories they can’t get rid of.
• Price Floors:
• Created
• Lowest legal price a commodity can be sold at
• Government uses to prevent prices from becoming too low

Excess Supply: QS > QD

Online Resource: https://www.mindtools.com/pages/article/newSTR_69.htm

1/13/17: Production Costs & Revenue

Production Costs & Revenue

• Total Revenue: Total amount of money a firm receives from selling goods & services.
• Total Revenue = P x Q
• Marginal Revenue: Additional income from selling an additional unit or a good.
• Fixed Cost: Cost that doesn’t change no matter how much of a good is produced.
•  Ex) Salaries, rent/mortgage, insurance
• Variable Cost: Cost that rises or falls depending upon how much is produced.

TFC  + TVC = TC

AFC + AVC = ATC

TFC / Q = AFC

TVC / Q = AVC

TC / Q = ATC

AFC  x Q = TC

AVC  x Q = TVC

Output = Quantity

Marginal Cost = New TC – Old TC

Online Resources: http://economics.fundamentalfinance.com/micro_atc_mc.php

http://www.tutor2u.net/economics/reference/short-run-costs-of-production

1/11/17: Elasticity of Demand

Elasticity of Demand

• Elasticity of Demand: Measure of how consumers react to a change in price.
• Elastic Demand: Demand that’s very sensitive to a change in price.
• Greater than 1 (G > 1)
• Product not a necessity
• Available substitutes
• Ex) Steak, fur coat, soda

• Inelastic Demand: Demand that isn’t very sensitive to a change in price.
• Less than 1 (L < 1)
• Product is a necessity
• There are few to no substitutes
• Ex) Gas, insulin

• Unitary Elastic:
• Equal to 1 (E = 1)

• Quantity-

New Quantity – Old Quantity / Old Quantity

• Price-

New Price – Old Price / Old Price

• Price Elasticity of Demand (PED)-

% Change in Quantity / % Change in Price

Online Resources: http://www.tutor2u.net/economics/reference/price-elasticity-of-demand

1/4/17: Factors of Production & PPG

Factors of Production & Production Possibilities Graphs

Factors of Production-

1. Land- Natural resources
2. Labor- Work exerted
3. Capital-
1. Human Capital: When people acquire skills & knowledge through experience & education.
2. Physical Capital: Money, tools, buildings, equipment & machinery.
4. Entrepreneurship- Risk taker, innovative.

• Trade-offs: Alternative that we sacrifice when we make a decision.
• Scarcity leads to trade-offs.
• Opportunity Cost: Most desirable alternative given up as a result of a decision.
• Guns are Butter: Phrase; refers to tradeoffs that the government makes when choosing to produce more or less military or consumer goods.
• Thinking at the Margins: Deciding whether to add or subtract one additional unit of some resource.
• Production Possibilities Graph (PPG): Shows an economies’ ways to use economic resources.
• Efficiency: Using resources tin such a way to maximize the production of goods & services.
• Increases Profits
• Underutilization: Opposite of efficiency; leads to decrease in profit.
• Using fewer resources than an economy is capable of using.

Four Key Assumptions (about PPG)-

1. Only two goods can be produced
2. Full employment of resources
3. Fixed resources (factors of production)
4. Fixed technology

3 Types of Movements That Occur Within the PPG-

1. Inside the PPG
2. Along the PPG
3. Shifts of the PPG

Online Resource: http://www.investopedia.com/terms/f/factors-production.asp

1/3/17: Basic Concepts of Economics

Basic Concepts of Economics

• Macro vs. Micro-
• Macroeconomics: Study of economy as a whole.
• Inflation, minimum wage, international trade
• Microeconomics: Study of individual or specific units of the economy.
• How households & firms make decisions & how they interact with markets

• Positive Economics vs. Normative Economics-
• Positive Economics: Attempt to describe the world as is.
• Very descriptive, collects & presents facts
• Normative: Attempt to prescribe how world should be.
• Opinion based

• Needs vs. Wants-
• Needs: Basic requirements for survival.
• Wants: Desires.

• Scarcity vs. Shortage-
• Scarcity: Permanent; Most fundamental economic problem facing all societies.
• Unlimited wants w/ limited resources
• Shortage: Temporary; Quantity demanded exceeds quantity supply.

• Goods vs. Services-
• Goods: Tangible commodities; Can be bought, sold, traded & produced.
• Capital Goods: Items used in creation of other goods.
• Consumer Goods: Intended for final use by consumer.
• Services: Work performed for someone.

Online Resource: http://www.investopedia.com/articles/economics/11/five-economic-concepts-need-to-know.asp