Foreign exchange (FOREX)
The buying and selling of currency

=> Consumer Taste
=> Relative income
=> Relative Price Level
=> Speculation

Appreciation of the dollar causes American goods to be relatively more expensive and foreign goods to be relatively cheaper thus reducing exports and increasing imports

Depreciation of the dollar causes American goods to be relatively cheaper and foreign goods to be relatively more expensive thus increasing exports and reducing exports

Specialization
Individuals and countries can be made better off it they will produce in what they have a comparative advantage and then trade with others for whatever else they want/need

Absolute and Comparative Advantage
Absolute Advantage
The producer that can produce the most output or requires the least amount of inputs (resources)

Comparative Advantage
The producer with least opportunity cost

Countries should trade if they have a relatively lower opportunity cost. They should specialize with the good that is "cheaper" for them to produce

Distinguishing input from output problems the output problems presents the data as products produced given a set of resources
An input problem present the data as amount resources needed to produce a fixed amount of output (example number of labor unions to produce 1 bushel)

May 8. 2017

Balance of Payments
measure of money inflows and out flows and flows between the united the united states and the rest of the world (row)
inflows are referred to as CREDITS
outflows are referred to as DEBITS
The balance of payments is dividend into 3 accounts current account
capital/ financial account 
official reserves account 
Currernt Account - balance of Trade or net Exports
-exports of goods and services
-import of goods and services
-export create a credit to the balance of payments
-importance a debit to the balance of payments
Net foreign Income
-Income earned big U.S owned foreign assets
Income paid foreign held U.S assets

Net Transfer (tend to be unilateral)
foreign aid => a debit to the current account
Example: Mexican migrants workers send to family in Mexico

Capital / Financial Account
The balance of capital ownership
INCLUDES the purchase of both real and financial assets
Direct investment by U.S firms/ individuals in a foreign country are debts to the capital account

The Factory in San Jose Costa Rica

Capital / Financial Account
Purchase of Foreign financial assets represents a debit to the capital account
Example Warren Buffet buys stock in Petra china

Purchase of domestic financial assets by foreigners represents a credit to the capital account

The united ARAB emirates sovereign wealth fund purchases a large stake

Relationship between Current and Capital Account
Remember double  entry bookkeeping
The current account and the capital account should zero each other out
That is.. it the current Account has a negative balance (deficit), then the capital account should then have a positive balance (surplus)

Official Reserves
The foreign currency holding of the United States federal Reserve system
When is a glance of payments surplus the fed accumulates foreign currency and debit the balance of payments

When is a balance of payments deficit the depletes the reserves of foreign currency and credit the balance of payments

The official Reserve Zero out the balance of Payments

Balance of Goods
Good exports- Good imports
Balance of goods and services
Good exports plush services exports - Good imports plus Services import
Current Account an own answer from this  (arrow pointing up) plus net investment

Balance of Capital Account
U.S purchases aboard plus foreign purchases in the U.S

Official Reserves
Current Account (+, - )
Plus
Capital Account ( +, -)
=
0 Theoretically

Supply-side economics or Reganomics 

A policy design to stimulate incentive to work. SAVE and INVEST 

These many include tax cuts which would increase disposable income

Luffer Curve Theortical relationship between tax rate and government revue ( as tax rises to a unknown level) no one will pay it

Criticism of the Laffer Curve 

1. Imperial suggest that the impact an incentive save and invest are small 

2. Tax cut increase demand which can find inflation 

3. Where is the economy is actually on the same is different to determine

The Phillips Curve
There is a trade off between inflation and unemployment in the short run.  (inverse relationship)
Ad increase upward pressure on prices which cause unemployment decrease and inflation to increase. When AD decrease downward pressure on prices which cause unemployment to increase and inflation to decrease.

Since wages are steady inflation changes moves the point on the SRPC if inflation persist and the expected rate of inflation rise and the entire SRPC move upward. Stagflation is where unemployment and inflation simultaneously rises.
If inflation expected drops due to new technology or efficient SRPC will move downward

Occur at the natural rate of unemployment it is represented by a vertical line there is a no trade between inflation and unemployment in the long run.

Because the economy produces at the full employment output level
LRCP will only shift if LRAS shifts analogous
increase in unemployment will shift LRPC =>
Decrease in unemployment will shift LRPC <=
IF the NRU changes the LRPC moves
NRU is frictional, structural, and seasonal

The MISERY INDEX is a combination of inflation
SINGLE DIGIT MISERY IS GOOD

3/3/2017

TOOLS OF MONETARY

Reserve Requirement
Open Market Operation
Discount Rates
The RR- The fed sets the amount sets the amount
There is a recession, what should the fed  does the reserve requirement
Decrease the reserve  ratio
RR decrease MS increase i decrease I increase  AD increase

Inflation what should the fed do?
Increase RR
RR increase MS decrease I decrease AD decrease

Open Market Operations is when the fed buys or sells government bonds (securities) this is the most important and widely used montary policy if the Feds buy bonds out of the economy and replaces them with money ms increase. If the fed sells bonds it takes money and gives security to the investor MS increase

The discount rate is the interest rate that fed charges commercial banks for short term loans. The federal fund rate is the interest rate that banks charge one another for overnight loans

Prime rate is the interest rate that banks charge their most credited worthy people

Loanable funds markets
Private sector supply and demand of loans brings together those who want to lend money shows effect R interest rate

O

3/23/2017 - 3/24/2017

Fractional reserve system

Demanded deposit are created by FRS 

FRS is the process in which bank keep a portion of their deposits in reserves, and loan out the excess 

The money, the bank keeps on hand is called Required reserves ratio (percentage of cash kept back) 

Banks must keep reserve deposit in there vaults or at the fed (federal reserves bank) 

Total reserves or Actual reserves = RR + ER 

New VS Existing Money

If the initial deposit in a bank comes from the FED or bank purchase of a bond or other money out of (buried treasure), the deposit immediately increases the money supply

The deposit then leads to further expansion  of the money supply through the money creation process

Total change in MS if initial deposit is new $  = deposit plus money created by banking system 

If a deposit in a bank is existing (already counted in  M1; example currency or checks, depositing the amount does not change the MS immediately because it is already counted.
Existing Currency changes on deposited into a checking account only the composition of the money supply from coins/paper $ to checking account deposits.
Total change in the MS of deposits is depositing $ banking system created money only.

A Single bank can create $ by the amount of its reserve
The banking system as  a whole can create $ by multiple of the excess reserves
MM X ER= expansion of money
Money Multiplier = 1/RR

3/22/2017

Bonds are Loans or  IOU's. that represent debt that the government or a corporation must repay to an investor
The hand holder has NO OWNERSHIP of the company
Nom interest rate decrease Value Bond increase
Nom interest rate increase Value Bond decrease

Stock owners can ear a profit in two ways
1. Dividends which are portions of a corporations profit, are paid out to stock  holders
2. A capital gain is earned when a stock holder sell stock for more than that she paid for it
A stock holder sell stock at a lower price the purchase price suffered a capital loss
Federal Reserve Bank
Two names nick, the fed, control bank

Money Market
Demand for money has inverse relationship between nominal interest rates and the quantity of money demanded

1) What happens quantity demanded of money when IR increase?
Quantity demanded decrease because individuals would prefer to have interest earning assets instead of borrowed  liabilities

2) When QD when IR decrease?
QD increase There is no incentive to convert cash into interest earning assets.
 Downward sloping
monet shifters
change in price level
change in income
change in taxation that affects investment

3/21/2017

Purpose of financial institutions
A. Store $
B. Store $
-savings accounts
-checking accounts
-CD (penalty)
C. Loans $ -car, house, business
Interest - price level for the use of borrowed money
Principal- amount that you can borrow

Types tof financial intermediaries
1. commercial bank (well fargo)
2. Savings and loans Institution
3. Credit Unison
4. Mutual Fund Compares
5. Finance Companies

The Financial System
Assets- Anything plus monetary value owned by a person or business
Financial asset - a paper claim that entitles the buyers to future income from the seller
Physical asset- a claim on a tangible object (example house, car)
Liability a requirement to pay money in the future (usually with interest)
5 major financial assets:
Loans,
Stocks,
Bonds,
Loans backed securities,
and bank deposits

The time Value of Money- a dollar is worth more today than  it is tomorrow. you are losing money every second you are not investing it.
Real interest Rate- Real = Nominal interest rate - expected inflation
The intend return on an investment for lending
The rate we get at the bank. The amount of interest that lenders must charge to make a return and adjust for inflation

Future value If you invest (lend) money ti someone it will compound (grow) according to the following equation
FV = PV (1+ i)
I = nominal Interest Rate , t = time

Present Value Is the amount of money I need to invest now, in order to get some amount (FV is known) in the future  PV = FV / (1 + i )

Time value of money
:Let V = future value of dollar
P = present value of $
R = real interest rate ( nominal - inflation rate ) expressed as a decimal

3/20/2017

Unit 4
The barter system goods and services are traded directly, there is no money exchanged.

What is money?
Money is anything that is generally accepted in payment for goods and services.
Money is NOT the same as wealth or income.
Wealth is the total collection of assets that store value.
Income is flow of earnings prevent of time

Money can be used as a
1) medium of exchange as good and services
2) unit of account measuring the value of goods and services
3) store of value consumption and savings

3 types of money
Representative money  Commodity money      Fiat money
IOU'S                            Gold,Silver, Cigarettes  Coins, Money because government says it

Characteristic of Money
1) Durability
2) Portability
3) Divisibly
4) Uniformity
5) limited supply
6) Acceptability

3 Types of Money
Liquidity is ease with which an asset can be access and converted into cash ( liquidized)
M1( High Liquidity)  Coin = Currency, and checkable deposits, demand deposits
M2 ( Medium Lucidity) M1 plus savings deposits (market money accounts)
CDS = certificate of deposits and mutual funds below $100k
M3 (Low Liquidity) M2 plus time deposits adobe $100k

3/6/2107

HOW DOES THE GOVERNMENT STABILIZES THE ECONOMY?
Fiscal Policy - actions by congress to stabilize the country changes in the expenditures or tax revenue of the federal government

2 tools of Fiscal Policy
Taxes government can increase or decrease taxes spending - government can increase or decrease spending

Fiscal Policy is enacted to promote over nation economic goods full employment price stability, economic growth

Deficits, Surpluses, and Debt
Balanced Budget => Revenues = Expenditures
Budget Deficits => Revenues < Expenditures
Budget Surplus R>E
Gov't Debt =>Sum of all D - Sum of all S

Government must borrow money what it runs a budget deficit government borrows from  
- individuals 
-corporations
- financial 

Fiscal Policy 

1. Discretionary Fiscal Policy (action)
• Expansionary fiscal policy - used during a deficit
• Contractionary fiscal policy - used during a surplus
2. Non Discretionary Fiscal Policy (no action)

3 Types of Taxes

1. Progressive Taxes
• Takes a larger % of income from high income groups
2. Proportional Taxes
• Takes the same % of income from all groups
3. Regressive Taxes 
• Takes a larger % from the low income groups

Contractionary Fiscal Policy (The Brake)

• Laws that reduce inflation and GDP
• Decrease government spening
• Tax increases
• Combinations of the two

Expansionary Fiscal Policy (The Gas)

• Laws that reduce unemployment and increase GDP
• Increase government spending  
• Decrease taxes on consumers 

Automatic or Built in stabilizers

• Anything that increases the governments budget deficit during a recession and increases its budget surplus during inflation without requiring explicit action by policy makers

2/24/2017

The Spending Multiplier Effect 
An initial change in spending (C,I,G,Xn) cause larger change aggregate spending or Aggregate demand
Multiplier = Change in AD/ Change in Spending

Why does this happen?
expenditures and income flow continuously which sets off a spending increase in the economy

Calculating
Multiplier = 1/-MPC or 1/MPS

Multiplier are positive when there is an increase in spending and negative when there is a decrease.

Tax Multiplier ( it is always negative)
When the government taxes, multiplier works in reverse
WHY??? because how many is leaving the circular flow

= -MPC/1-MPC or -MPC/MPS
If there is a tax cut then the multiplier is because there is now more money in the circular flow

REASONS WHY PRICES TEND TO BE INFLEXIBLE OR "STICKY" IN A DOWNWARD DIRECTION. 
Due to menu cost
Fear of price wars
Wage Contracts
Min.Wage
Moral/ effect and productivity


Recession horizontal range - low output /GDP low / unemployment high
AS Intermediate range - upward sloping/ output expand / total spending expand
LR vertical range - firms cant not respond to increase in demand by increasing output FULL EMPLOYMENT

2/23/2017

Consumption and Savings 
Disposable Income (DI)
Income after taxes or net income
DI = Gross Income - Taxes
2 Choices with Disposable income, household can either
-Consume (Spend Money on goods and Services)
-Save ( not spend money on goods and services)

Consumption
Household Spending is the ability to consume is constrained by the amount of disposable income
- the propensity to save
Do households if DI equals 0?
-Autonomous Consumption
-Dis saving

APC = C/DI = % DI that is spent 

Average saving 
Household not spending
The ability to save is constrained by the amount of disposable income
The propensity to consume

Do household save if DI = 0
No
APS = S/DI = % THAT IS  NOT SPENT

APC AND APS
APC + APS = 1
1- APC = APS
1- APS = APC
APC > 1 DISSAVING

MPC AND MPS
Marginal Propensity to consume
Change in C/ Change in DI
% of every extra dollar demand that is spent

Marginal Propensity to save
Change in S/Change in DI
% of every extra dollar earned that is saved
MPC +MPS = 1
1 - MPS = MPC
1 - MPC = MPS

Determinants
-wealth
-exception
-household debt
-Taxes

2/21/2017

What is investment?
Money spent or expenditures on:
New plants ( factories),
Capital equipment (machinery),
Technology (hardware and software),
New homes,
Inventories (good sold by producers)

Expect Rates of Return
How does business make investment decisions?
cost/benefit analysis
How does business determine the benefits?
expected rate of return
How does business count the cost?
interest rate
How does business determine the amount of investment they undertake?
Compare expected rate of return to interest cost if expected return > interest cost, then do not invest

Real (r%) v Nominal (n%)

What is the difference? Nominal is the  observable rate of interest
Real subtract out inflation and is only know ex post Fatco
What then determines the cost an investment decision?

The real interest rate (r%)

Investment Demand Curve
What is the shape of the investment demand curve?
-downward sloping

Shifts in investment Demand
-cost of production 
-business taxes
-Technological change 
-stock of capital
-expectations 

Aggregate supply
The level of real GDP that firms will produce at each price level (PL)

Long run period of time where input prices are completely flexible and adjust to changes in the price level
In the long-run the level of Real GDP supplied is in dependent of the price- level

Short run period of time where input minus are sticky and do not adjust to changes in the price level
In the short run the level of real GDP supplied directly related to the price level

Long Run Aggregate Supply
The long run Aggregate supply or LRAS marks the level of full employment in the economy (analogous to PPC)

Short Run Aggregate Supply
Because input prices are sticky in the short run, the SRAS is upward sloping

Changes in SRAS
an increase in SRAS is seen shift to the right ->
a decrease in SRAS is seen as a shift to the left SRAS <-

The key understanding shifts in SRAS is per unit cost of production
Per unit production cost equals Total input cost/ Total output

Determinants of SRAS to shift
-input prices
-productivity 
-Legal-institutional environment

Input prices
domestic resources (in the U.S) 
-wages (75% of all business costs)
-cost of capital
-raw materials (commodity prices)

Foreign Resources Power
Strong $= lower foreign resources prices
Weak $= higher foreign resources prices

Market Power
-monopolies and cartels that control resources
control the price of these resources

Increase in resource prices = SRAS <=
Decrease in resource prices = SRAS => 

Productivity = Total output/ Total Inputs
More Productivity = Lower unit Production cost = SRAS =>
Lower Productivity = Higher unit Production cost = SRAS <=

Legal institutional

Taxes and Subsides
Taxes( $ to government) on business increase in per unit production cost = SRAS <=
Subsides ( $ to government) to business reduce per unit production cost = SRAS =>

Government Regulation 
-Government regulation creates a cost of compliance = SRAS <=
-Deregulation reduces compliance cost = SRAS =>

2/17/2017

Increase in Aggregate Demand
Determinants of AD
Consumption (C), Gross Private Investment (IG), Government Spending (G), Net exports (Xn)

1) Change in consumer spending, Consumer wealth (boom in market), Household indebtedness, Taxes

2) Change in investment spending, Real interest Rates (price of borrowing $), Future Business Expectations, Productivity and Technology, Business taxes

3) Change in government spending (war), (decrease in defense spending)

4) Change in Net exports (X-M), exchange rates, national income compared to aboard

AD= GDP = C+I+G+Xn
Government spending AD->
Less Government spending AD<-

2/16/2017

Aggregate Demand Curve

AD is the demand by consumers business, government and foreign countires
Changes in price level cause a move along the curve not a shift of the cruve

AD= C+I+G+Xn

The relationship between the price level and the level of real gap is inverse

3 Reason ( Why is AD downward sloping)
1. Wealth effect

• Higher prices reduce purchasing power of a dollar 
• This desires the quint of expenditures 
• Lower price level increase purchasing power and increase expenditures 

2. Interest-Rate effect

• As price level increase, lenders need to charge higher interest rate to get a real return on their loans 
• Higher interest rate discourage consumer spending and business investment 

3. Foreign Trade effect 

• When U.S price level rises, foreign buyers purchase fewer U.S goods and Americans buy more foreign goods 
• Export fall and import rise causing real GDP demanded to fall ( Xn decreases) 

Shifts in Aggregate Demand 

There are two parts to a shift in AD 

• a change in C,Ig,G, and/or Xn
• multiplier effect that produces a greater change than the original change on components 

Increase in AD= AD -> 

Decrease in AD=AD<-

What is unemployment? the percent of people in the labor force who want a job but are not working

Work at least 1 hour a month considered employ
Temporary absent framework means your employ
Part time workers

Not in the labor force

• kids
• full time students 
• retirees 
• military personnel 
• mental Institution 
• jail 
• stay at home Dad/mom
• the discourage 

Unemployment rate = # of unemployed/ labor force ( employed plus unemployed) x100 

Standard 4-5%

4 types of Unemployment 

1) fictional unemployment  

"temporarily unemployment" or being between jobs 

skills but they aren't working

2) Seasonal unemployment

this specific type of fictional unemployment is due to time of year and the nature of the job

3) Structural unemployment 

changes in the structure of the labor force make some skills obselete 

works DO NOT have transferable skills and these jobs will never come back  

The permanent loss of these jobs is called "creative destruction" 

4) Cyclical employment 

employment that results from economic downtruns (recessions) 

as a demand for goods and services falls demand for labor 

frictional plus structural equals NRU (4-5%)

Oakum's law

when employment rises 1 percent above the natural rate GDPS falls by about 2 percent 

February 3, 2017

Nominal GDP vs Real GDP

Nominal GDP is value of output produce in current prices 
Price times Quantity can increase from year to year, it either output increase or prices increases

Real GDP is  the value of output produce inconstant base year prices adjusted for inflation 
measure economic growth use real GDP 
in the base year can increase year to year only its output can increases (only the quantity)

In the base year nominal and real GDP are equal. In years after the base year nominal exceed real GDP. In years before  the base year real GDP exceed nominal.
Real GDP = current quantity x base prices
GDP deflator- it is a price index use to adjust nominal to real GDP
Formula Nominal GDP/ Real GDP x 100

Consumer Price Index measure inflation by tracking changes in the price off a market basket of goods  for example (car, motorcycle)

Price a market basket of goods in a current year/ Price of market basket of goods in a base year x 100 Feburary 6, 2017

Inflation is a general rise in price level it reduces the purchasing power of a dollar
purchasing power is an amount of good and services that money buys


3 Causes of inflation
1) the government prints too much money ( the quality theory)
2) Demand pull inflation
too many dollars chasing too few goods excess of demand over output that pull prices upward
3) cost push inflation higher production costs increase prices

standard Inflation is 2to 3% inflation rate formula
Current - base/ base year price index x100

Rule of 70 is used to calcite the number of year it will take for the price level to double at any given rate of inflation

70/ annual inflation rate

Deflation vernal decline in the price level

Disinflation it occurs when the inflation rate it self declines

Real interest rate - the percentage increase in purchasing power that a borrower pays to the lender (adjusted for inflation)
Real = nominal interest rate - expected inflation

Hurt by inflation

• lenders  - people who fixed money (at fixed interest rates) 
• people with fixed incomes 
• savers 

Helped by inflation

• borrowers - people who brows money 
• a business where the price of the product increases faster than the price of resources 

Cost of living adjustment ( COLA)

Some Works have salaries that mirror inflation they negotiated wages that rise with inflation 

February 2, 2017

Calculating Income approach

National income
1st formula
Compensation of employees + Rental Income + Interest Income + Proprietress Income+ Corporate Profit

2nd formula 
GDP- Indirect business taxes - Depreciation- net foreign factor payments


Disposable Personal Income = National Income - Personal household taxes + government transfer payments

Budget = Government purchases of goods and services = government transfer payments - government tax and fee collection
 Positive answer means deficit
Negative answer mean surplus

Trade = Exports minus Imports
Positive answer means surplus
Negative answer means deficit

Net Domestic Product equals GDP- Depreciation
Net National Product equals GNP- Depreciation
Net Investment plus Depreciation equals Gross investment 
GNP = GDP + foreign factor payments

January 26 ,2017

Circular Flow Model

Household is a person or group that share their income

Firm/Business is an organization that produces good and services for sale 

Gross Domestic Product 

GDP - total value of all final goods and services produced within a country border in a given year

• includes all production and income earn within a the U.S by the U.Sand foreign producers 
• exclude proton outside the U.S even by Americans 

GNP Gross National Product

• the total value of all final good and services produced by Americans within a year 
• Includes production or income earn by americans anywhere in the world 
• exclude production by non Americans even in the U.S

C+Ig+G+ GDP

C= Consumption (67% of the economy) 

Ig= Gross private Domestic Investment (18% of the economy) 

• new factory equipment 
• factory equipment maintenance 
• construction of housing
• unsold inventory of produces built in a year   

G= Government Spending (17% of the economy (school bus,weapons) 

Xn= net exports (exports - imports) 2% of the economy  

Included C, Ig, G, Xn

• Excluded Intermediate goods use to make finish product 
• avoid double or multiple counting 
• used or second hand goods avoid double counting
•  Stocks and bonds no production 
• gifts and transfer payments (scholarship)
• illegal activities 
• unreported business activités 
• non market activity (volunteering, baby-sitting) 

January 22, 2017

1 cycle is Trough to Trough 

Average cycle is 5 to 7 years 

Recessions last about 14 months 

Peaks and troughs are meaningless because we never know we are in one until its over 

Trough means end of reccesion 

It a recession loses in are them 10% of real GDP then, its a depression 

January 20, 2017

Supply and demand
Equilibrium it is a past at which the supply and the demand curve intersect

Excess demand occur when QD > QS greater than quantity supply

Excess demand result in a shortage is where consumers can't get the quanity of the items that they desire   

Price ceiling create a shortage when the goverment sets a legal limit on how high the price of a product can be in order for price willing to be effective it must be below equlibrum

Excess supply QS>QD this is QS is greater than QD

Surplus producers have inventory, where they can't get rid of price floor

Price floor lowest legal price can be sold at used by the government to prevent prices from becoming to low

Example: minimum wage

January 5, 2017

Production Possibilities Graph shows an alternative way to show economy resources the line of the PPG the frontier

Efficiency is using resources in such a way to maximize the production of goods and services leads into increase profit 

Under utilization - opposite efficiency using fewer reason than economy is capable of using into decrease profit 

Part A- equally produce both attainable efficent  

Part B- attainable but inefficient under utilization unemployment/under employment of resources 

• famine/shortage food 
• war
• recession   

Part C unattainable. using the current resources 

Technology ecumenic growth 

Key assumpations 

1.  only 2 goods can be produced 

2. full employment of resoruces  

3. Fixed resources (factors of production) 

Three types of movement that occur with the PPC 

Inside the PPC 

Along the PPC 

Shifts of the PPC  

 When resources are shifted from making good or service to another the cost of producing the second and item increase. 

Elasticity of demand is measure of the consumer reaction to change in price 

Elastic demand - a demand that is very sensitive to change in price

• product is not a necessity 
• there are available substitutes  

E > 1  Example 1. Soda 2. Steak 3. Fur coat 

Inelastic demand is that is not very sensitive to a change in price 

• product is a necessity 
• no substitues 

E < 1 example: 1. gas 2. insulin

Unitary Elastic E=1

PED 

Step 1: Quantity New Quantity - Old Quantity/ Old Quantity 

Step 2: New price - Old price/ Old price 

Step 3: % 🔼 in quantity/ %🔼 in price = PED

Total revenue - total amount a firm recieves from selling goods and services  PXQ=TR  

TFC + TVC = TC

AFC + AVC = ATC

TFC/Q=AFC

TVC/Q=AVC

TFC=AFC X Q

TVC=AVC X Q

Marginal Cost 

New TC - Old TC = Marginal Cost 

January 4, 2017

Factors of Production
1. Land- natural resoruces
2. Labor- work exerted
3. Capital
                 -Humans Capital is people acquire skills and knwolegde threw experience and education
                 -Physical Capital is money, tools, building, equipment, machinery
4. Entrepreneurship - innovative, risk taker,

Trade offs- a scarifice when we make a decsion  

Opportunity cost - most desirable alternative given up as a result of a decision
Guns or butter - refers to trade offs that nation face when choosing whether to produce more or less military or consumer goods

Thinking at the margins is deciding whether to add or subtract one additional unit of some resource

Jan 3, 2017

Macroeconomics is a study of the economy as a whole "the big picture"

VS

Microeconomics is the study of individual or specific unit of the economy decisions that household make and how they interact in the market


Postive Economics

• Claims - an attempt to describe world as is
• descriptive in nature
• based in facts              

                  VS

Normative Economics 

• Claims - that attempt to prescribe how the world should be 
• Option based   

Needs is basic requirements for suvrival     VS  Wants (Desire) 

Scarcity Fundamental 

economic problem all society face "how to satisfy unlimited wants with limited  resources."

VS

Shortage 

Quantity demand is greater than quantity supply QD>QS

Goods
Tangible condiments (touch, hold) sold bought, traded, produce
consumer good- goods that are intended for final use 

capital goods- items used in the creation of other goals
                                      VS
Services 
work is that performed for someone  example: concert, barbershop