Unit 2: Circular Flow

Household

• A person or a group of people who share an income.

Firms

• An organization that produces goods and services for sale.

Factor (Resources) Market

• Market where factors of production are sold 
• Bought by Firms 
• Sold by Households 

Product Market 

• The market in which goods and services are bought and sold. 

Unit 1: Price Ceiling, Price Floor, Business Cycles

Price Ceiling

• A legal maximum price meant to help buyers.

Example: Rent Control
Consequences:

• Lower Prices for consumers
• Shortages
• Long line for buyers
• Illegal sales above equilibrium price

Price Floor:
Legal Minimum price meant to help sellers; keeps prices from falling
Consequences:

• Higher Product prices
• Surplus
• Higher Taxes 
• Waste

Bussiness Cycles

Business Cycle

• Fluctuations in economic activity that an economy experienced over a period of time.

1. Expansion: Periods of economic upturn when output and employment are rising
2. Peak: Highest Point. This is the period in which business activity has reached the temporary maximum
3. Contraction: Period of decline in total output, income and employment
4. Trough: Lowest point. The economy goes from recession to depression. 

Demand and Supply

Demand  

•  The quantities that people are wiling and able to buy at various prices. 

The Law of Demand  

• There is an increase relationship between price and quantity demanded. 

What causes a change in quantity demanded?

• Change (Delta) in price.  

What Causes a change in demand?

• Change in buyers taste
• Change in number of buyers
• Change in income
• Change in prices of related goods
• Change in expectations

Supply  

• The quantities that suppliers/producers/sellers are willing and able to produce at various prices.  

The Law of Supply

• Direct relationship between price and quantity of supply.  

What causes a change in Supply?

1.  Change in the number of sellers/suppliers/producers
2. Change in the cost of production
3. Change in Technology 
4. Change in Weather
5. Change in taxes and subsidies
6. Change in expectations

Unit 1: PPG'S

Points On A PPG 

1.  Point A (Inside of the Curve)

• Unattainable 
• Underemployed
• War
• Famine
• Recession/Depression 

       2. Point B (On the Curve)

• Efficient and Attainable

       3. Point C (Outside the curve)

• Unattainable
• Economic Growth 
• Technology  

       4. Opportunity Cost 

• The next best alternative that you must give up in order to get something (Trade-off)

       5. Law of increasing opportunity cost

• As you produce more of one good the opportunity cost (forgone production of another good) will increase.

       6. Productive Efficiency 

• Products being produced in the leaste costly way. (This is any point on the PPG)

       7. Allocative Efficiency

• Products being produced are the ones most desired by society.