What is Economics? What is Scarcity? Why does scarcity affect us at all times?
Scarcity is everywhere! When a choice is made, the opportunity cost is the value of what is given...
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Transcript of Scarcity is everywhere! When a choice is made, the opportunity cost is the value of what is given...
ECONOMICS DPM REVIEW
Scarcity is everywhere! When a choice is made, the opportunity cost is the value of
what is given up. Therefore, all countries must make choices when answering the
three economic questions. What should be produced? Who should produce them? Who will get them?
The Factors of Production (FOPS): Land (natural resources) Labor (people working) Capital (things businesses use to make money) Entrepreneurship (people who invent things, for example)
Basic Economic Ideas
The PPF
Shows the possible combinations of two goods that can be produced
Shows scarcity and opportunity cost: make more of one, give up some of the other
Points inside the curve are possible, but underutilizing resources
Points outside the curve are impossible for now, but might be in the future with technology advances
Supply and Demand
Demand curve: shows what consumers are willing and able to buy at various prices Price goes up, quantity
demanded goes down Supply curve: shows
what consumers are willing and able to by at various prices. Price goes up, quantity
supplied goes up
Supply and Demand
Markets will return to equilibrium without government interference
A price of $1 will create a shortage where the quantity demanded is greater that the quantity supplied. Government imposed=
price ceiling A price of $3 will create a
surplus where the quantity supplied is greater than the quantity demanded Government imposed=
price floor
Supply and Demand
Determinants Demand Curves will shift
due to changes in: Taste and Preferences
of consumers Income of consumers Buyers (number of) Expectations of
Consumers Related goods (price
of) Supplements and
complements
Supply Curves will shift due to changes in: Technology Other goods (price
of) Number of Sellers Expectations of Firms Resource Prices Subsidies and Taxes
Subsidy- “tax in reverse”
Shifting Supply and
Demand Curves INCREASE TO THE
RIGHT DECREASE TO THE
LEFT
Circular Flow Model
Remember: Firms purchase stuff in the factor market People purchase stuff in the product market Below: Red arrows are physical flow and green arrows are
monetary flow
Types of Economic
Systems
Command• Total amount of government interference
Communism
• Large amount of government Interference
• Example- China, North Korea
• Karl Marx
Socialism• Some government interference, government owns the FOPS
Capitalism• Market system with a amall amount of government interference
• Example- United States
Free Market• No government interference
• Adam Smith