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Class 1 ReviewClass 1 Review

● What is a business?● Are profits bad?

– Do not think emotionally– Think economically

● Who determines what products are offered?

– How do people say what they want? (vote?)

Measuring the EconomyMeasuring the Economy

● Gross Domestic Product, GDP– The sum of all goods and services

produced within a nation’s boundaries

● U.S. GDP > $14 trillion● China GDP > $5 trillion

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Productivity: Key to Global CompetitivenessProductivity: Key to Global Competitiveness

● Productivity describes the relationship between the number of units produced and the number of human and other production inputs necessary to produce them.

TotalTotal Output (goods or services produced) Output (goods or services produced)ProductivityProductivity Input (human/natural resources, capital) Input (human/natural resources, capital)

=

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Economics - 1

Microeconomics

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Economic ThinkingEconomic Thinking

● Freakonomics– Economics applied to abortion– Economics applied to daycare– Economics applied to drug dealers

● Think differently– Milton Friedman’s “Free to Choose”

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OverviewOverview

● Economics—social science that analyzes the choices made by people and governments in allocating scarce resources.

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Supply and Demand

● What is your pet worth? (vote with your dollars)

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EconomicsEconomics

● Microeconomics—study of small economic units, such as individual consumers, families, and businesses.– Assumes everyone acts in their own best interest

(is greedy)– Who is not greedy? Politicians?

● Macroeconomics—study of a nation’s overall economic issues, such as how an economy maintains and allocates resources and how government policies affect the standards of living of its citizens.

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Microeconomics:Microeconomics:The Forces of Demand and SupplyThe Forces of Demand and Supply

● Demand—willingness and ability of buyers to purchase goods and services.

● Supply—willingness and ability of sellers to provide goods and services.

Factors Affecting DemandFactors Affecting Demand

● Consumer preferences● Incomes● Prices of substitute products● Advertising● Number of buyers● Economy● Quality● Future expectations

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● Demand Curve – Graph amount of a product that buyers purchase at

different prices– Demand curves typically slope downward and to the

right; lower prices attract larger purchases

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● Expected Shifts in Demand Curves

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● Shift in the Demand Curve

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●Supply CurveShows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand

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Factors Affecting SupplyFactors Affecting Supply

● Costs of goods● Costs of labor● Costs of technology● Availability of suppliers● Taxes● Weather (how?)

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● Expected Shifts in Supply Curves

Shifts in the Supply CurveShifts in the Supply Curve

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● Law of Supply and DemandEquilibrium price

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Supply and Demand

● Consider the market for lemonade. What happens when:– There is a heat wave– The price of sugar goes up– The cost of a can of soda falls– There is a baseball game on the street