What are economics?
- study of how individuals, businesses, and governments use their scarce resources to fulfill their needs and wants
- factors of production (FOP): land labor production
- scarcity – when an item is limited and people want or need it
- good and service (G+S)
- trade-off – exchanging one good/service for another (voluntary service)
- needs: food, shelter, clothing
- wants: everything else
- goods – items that are made
- service – goods for a fee
- opportunity cost – what one gives up in order to get something else
Factors of Production:
- land – natural resources (i.e. iron ore, coal, petroleum, fertile soil, water, fruit, vegetables)
- labor – work force (i.e. teacher, engineer, file clerk, auto mechanic, accountant, physician, security guard)
- capital – machinery or items used to make other things (i.e. tractor, factory, crane, hammer, power saw, jackhammer, wrecking ball)
- entrepreneurship – owners of business
Supply and Demand
Law of Demand – as the price of a good/service goes up, consumers will buy less; as the price of a good/service goes down, consumers will buy more
P ↑ ↓ ] inverse relationship between price and quantity demanded
Qd ↓ ↑ ]
Factors that affect demand:
- substitutes
- name recognition
- law of diminishing marginal utility (LDMU)
Law of Supply – as the price of a good/service goes up, producers will produce more; as the price of a good/service goes down, producers will produce less
P ↓ ] direct relationship between price and quantity supply
Qs ↓ ]
Factors that affect supply:
- cost of production
- new competition
- technology
Types of Market Structure
| Market Structure | No. of Firms | Type of Product | Conditions of Entry | Type of Price-setting Behavior | Existence of Nonprice Competition | Examples |
| Pure (perfect) competition | Many | Homogeneous | Free or very easy | Determined by market | None | wheat, corn, agricultural products |
| Monopolistic competition | Many | Diffferentiated | Relatively easy | Determined by market plus small amount of discretion | Some, especially by advertising | fast food, gasoline, name brands |
| Pure oligopoly | Few | Homogeneous | Substantial barriers | Determined by market plus considerable discretion, possible price leadership | Some, such as ontime delivery | steel industry, aluminum industry |
| Differentiated oligopoly | Few | Differentiated | Substantial barriers | Determined by markt plus considerable discretion, possible price leadership | Extensive | breakfast cereal, soft drinks, beer, soup, toothpaste |
| Monopoly | One | Only product of its kinid | Entry can be blocked | Establishes price at most profitable level possible | Advertising of firm’s “image” | electric utility company, local phone company |
Monetary and Fiscal Policy
Main goals of the United States:
- full employment
- price stability
- economic growth
inflation – prolonged rise in goods and services
gross domestic product (GDP) – total dollar value of a nation’s good/services in a year
fiscal policy – use of taxes and government spending to reach economic goals
monetary policy – manipulation of money supply through federal reserve system to reach economic goals
