Economic Foundations |
Learning Resources
Supply/Demand Game
Supply and Demand Explained
Supply and Demand in Indiana Jones
Efficiency and Market Failure
GDP, Recession, and Fiscal Policy
Supply and Demand Explained
Supply and Demand in Indiana Jones
Efficiency and Market Failure
GDP, Recession, and Fiscal Policy
Topic Review
1. FUNDAMENTALS
A. NEEDS/WANTS
A need is something that one must have to survive (like food, water, or housing) whereas a want is something that is desired but not required (like jewelry)
B. GOOD/SERVICE
A good is something for sale that is physical and can be touched (like a soda) whereas a service is something that is done for someone (like lawn mowing)
C. SCARCITY
This is the basic economic problem: not enough goods and services to satisfy all needs and wants.
D. OPPORTUNITY COST & TRADE-OFFS
Opportunity cost is defined as the value of the next best alternative choice that was not made. Due to scarcity, we all have to make trade offs.
2. BASIC ECONOMIC QUESTIONS
What are the questions that all societies must answer?
A. WHAT TO PRODUCE?
B. HOW TO PRODUCE?
C. FOR WHOM TO PRODUCE?
3. ECONOMIC SYSTEMS
How to different societies answer the basic economic questions?
A. TRADITIONAL
The economy runs as it always has, with traditional roles being filled by men and women.
B. COMMAND (COMMUNIST/SOCIALIST)
The government or central authority decides how to answer the basic economic questions.
C. CAPITALIST
The marketplace decides the answers to the basic economic questions.
I. TRAITS OF THE FREE MARKET SYSTEM
1. PRIVATE PROPERTY
2. PROFIT MOTIVE
3. PRIVATE ENTERPRISE
4. COMPETITION
5. FREEDOM OF CHOICE
II. VARIATIONS
1. MONOPOLY
One company is the only supplier in an industry, so it can set availability and prices as it wants.
2. PURE/PERFECT COMPETITION
There are many suppliers competing for customers, theoretically reducing prices.
3. MONOPOLISTIC COMPETITION
A small number of companies compete for customers.
4. MIXED
Some combination of the above exists. This is the system we have in the U.S.
4. SUPPLY & DEMAND
Supply is the number of units producers are willing and able to sell. Demand is the number of units consumers are
willing and able to buy. The point where supply meets demand is called the equilibrium price.
CHANGES IN DEMAND OR SUPPLY WILL AFFECT PRICES
A. If demand is constant and supply goes up, prices will fall.
B. If demand is constant and supply goes down, prices will rise.
C. If supply is constant and demand goes up, prices will rise.
D. If supply is constant and demand goes down, prices will fall.
5. BUSINESS CYCLE
An economy goes through natural cycles of expansion and contraction.
A. PROSPERITY
Times are good. Unemployment is low. Consumer spending is relatively high.
B. RECESSION
The economy is slowing down. Unemployment is increasing. Consumer spending is slowing.
C. DEPRESSION
The economy is weak. Unemployment is high. Wages are low. Consumer confidence is low. There is reduced
business activity.
D. RECOVERY
Business activity is picking up. Unemployment is going down. Wages are increasing. Consumers increase
their buying.
6. INFLATION & DEFLATION
Inflation is when the cost of items increase over time, thus decreasing the value of each dollar earned. Deflation is when the cost of items decrease over time, thus increasing the value of each dollar earned.
7. CIRCULAR FLOW
This is a diagram to illustrate how money circulates in our economy.
A. PLAYERS
I. HOUSEHOLDS/PEOPLE
II. BUSINESSES/ENTREPRENEURS
B. MARKETS
I. FACTOR MARKET
1. FACTORS OF PRODUCTION: NATURAL RESOURCES, LABOR, CAPITAL, & ENTREPRENEURSHIP
Natural resources are things like mineral ore, forests, water, or corn. Labor refers to the workforce.
Capital is investment in businesses through the buying of stock. Entrepreneurship is the
development of business ventures.
2. INCOME: WAGES, RENTS, INTERESTS, PROFIT
II. PRODUCT MARKET
1. FINISHED GOODS & SERVICES
2. PAYMENT FOR GOODS & SERVICES
The circular flow diagram can also be expanded to include the banking and government players.
8. IMPORTANT ECONOMIC INDICATORS
A. CONSUMER PRICE INDEX
This measures the cost to consumers of a hypothetical "basket of goods".
B. GROSS NATIONAL PRODUCT (GNP)
This represents the total value of all goods and services produced by a country.
C. UNEMPLOYMENT RATE
This generally represents the percentage of people who are both able and looking to work but cannot find a
job.
D. INFLATION RATE
This is the yearly rate of in the cost of things.
E. HOUSING STARTS
A good measure of how the economy is doing is the number of new houses constructed. This is because it
represents new and large investment, which is a good
indicator of both business activity and consumer confidence in future economic activity.
A. NEEDS/WANTS
A need is something that one must have to survive (like food, water, or housing) whereas a want is something that is desired but not required (like jewelry)
B. GOOD/SERVICE
A good is something for sale that is physical and can be touched (like a soda) whereas a service is something that is done for someone (like lawn mowing)
C. SCARCITY
This is the basic economic problem: not enough goods and services to satisfy all needs and wants.
D. OPPORTUNITY COST & TRADE-OFFS
Opportunity cost is defined as the value of the next best alternative choice that was not made. Due to scarcity, we all have to make trade offs.
2. BASIC ECONOMIC QUESTIONS
What are the questions that all societies must answer?
A. WHAT TO PRODUCE?
B. HOW TO PRODUCE?
C. FOR WHOM TO PRODUCE?
3. ECONOMIC SYSTEMS
How to different societies answer the basic economic questions?
A. TRADITIONAL
The economy runs as it always has, with traditional roles being filled by men and women.
B. COMMAND (COMMUNIST/SOCIALIST)
The government or central authority decides how to answer the basic economic questions.
C. CAPITALIST
The marketplace decides the answers to the basic economic questions.
I. TRAITS OF THE FREE MARKET SYSTEM
1. PRIVATE PROPERTY
2. PROFIT MOTIVE
3. PRIVATE ENTERPRISE
4. COMPETITION
5. FREEDOM OF CHOICE
II. VARIATIONS
1. MONOPOLY
One company is the only supplier in an industry, so it can set availability and prices as it wants.
2. PURE/PERFECT COMPETITION
There are many suppliers competing for customers, theoretically reducing prices.
3. MONOPOLISTIC COMPETITION
A small number of companies compete for customers.
4. MIXED
Some combination of the above exists. This is the system we have in the U.S.
4. SUPPLY & DEMAND
Supply is the number of units producers are willing and able to sell. Demand is the number of units consumers are
willing and able to buy. The point where supply meets demand is called the equilibrium price.
CHANGES IN DEMAND OR SUPPLY WILL AFFECT PRICES
A. If demand is constant and supply goes up, prices will fall.
B. If demand is constant and supply goes down, prices will rise.
C. If supply is constant and demand goes up, prices will rise.
D. If supply is constant and demand goes down, prices will fall.
5. BUSINESS CYCLE
An economy goes through natural cycles of expansion and contraction.
A. PROSPERITY
Times are good. Unemployment is low. Consumer spending is relatively high.
B. RECESSION
The economy is slowing down. Unemployment is increasing. Consumer spending is slowing.
C. DEPRESSION
The economy is weak. Unemployment is high. Wages are low. Consumer confidence is low. There is reduced
business activity.
D. RECOVERY
Business activity is picking up. Unemployment is going down. Wages are increasing. Consumers increase
their buying.
6. INFLATION & DEFLATION
Inflation is when the cost of items increase over time, thus decreasing the value of each dollar earned. Deflation is when the cost of items decrease over time, thus increasing the value of each dollar earned.
7. CIRCULAR FLOW
This is a diagram to illustrate how money circulates in our economy.
A. PLAYERS
I. HOUSEHOLDS/PEOPLE
II. BUSINESSES/ENTREPRENEURS
B. MARKETS
I. FACTOR MARKET
1. FACTORS OF PRODUCTION: NATURAL RESOURCES, LABOR, CAPITAL, & ENTREPRENEURSHIP
Natural resources are things like mineral ore, forests, water, or corn. Labor refers to the workforce.
Capital is investment in businesses through the buying of stock. Entrepreneurship is the
development of business ventures.
2. INCOME: WAGES, RENTS, INTERESTS, PROFIT
II. PRODUCT MARKET
1. FINISHED GOODS & SERVICES
2. PAYMENT FOR GOODS & SERVICES
The circular flow diagram can also be expanded to include the banking and government players.
8. IMPORTANT ECONOMIC INDICATORS
A. CONSUMER PRICE INDEX
This measures the cost to consumers of a hypothetical "basket of goods".
B. GROSS NATIONAL PRODUCT (GNP)
This represents the total value of all goods and services produced by a country.
C. UNEMPLOYMENT RATE
This generally represents the percentage of people who are both able and looking to work but cannot find a
job.
D. INFLATION RATE
This is the yearly rate of in the cost of things.
E. HOUSING STARTS
A good measure of how the economy is doing is the number of new houses constructed. This is because it
represents new and large investment, which is a good
indicator of both business activity and consumer confidence in future economic activity.