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ECONOMICS DPM REVIEW

ECONOMICS DPM REVIEW. Basic Economic Ideas. 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?

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ECONOMICS DPM REVIEW

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  1. ECONOMICS DPM REVIEW

  2. Basic Economic Ideas • 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)

  3. 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

  4. 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

  5. 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

  6. 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”

  7. Shifting Supply and Demand Curves • INCREASE TO THE RIGHT • DECREASE TO THE LEFT

  8. 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

  9. Types of Economic Systems

  10. The Business Cycle

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