Economics

Factors of Production =land, labour, capital, materials

factor markets; Services and finished goods mkts = goods mkts or product mkts
Capital Markets ;
mkt price causes movement along a curve;

in a variable other than price results in a shift.

Inc in price = dec in demand and inc in supply;

Movement
Shifts: Demand = Increase in income; substitute price ; complement price
Supply = Decrease of Input cost
Stable equilibrium -> There are forces that move $ price and Quantity towards equilibrium when they
deviate from these values. The supply curve can be more steeply sloped than the demand curve
Unstable: -> supply curve is less steeply sloped than demand curve. (supply curve non-linear creates 2
equilibrium, one stable and one not!)
Auctions:
Common Value: value same to all bidders (eg. oil lease); they dont know what that value is @ auction
time; most overestimate the value (winners curse)
Private Value =
Ascending price auction (English auction) normal shit mang like in the movies and shit brother
Sealed bid; Second price sealed bid (Vickery) = winner pays amount just over #2 highest bid
Descending price = Dutch; Single price bid -> noncompetitive bid will accept at auction determined price

Consumer Surplus = difference between the value bought and the price paid
Producer Surplus = excess of mkt price above opportunity cost of production (TR TVC)
Calculate area of triangle (height x width x ).
Tax: Statutory incidence = who legally pays it; Actual Incidence = who bears the cost
If demand is less elastic (steeper) than supply, then the consumers bear the higher burden
If supply curve is less elastic (steeper) than demand, then the suppliers will bear a higher burden

Subsidies cause increase in supply (shift to right) and causes deadweight loss (over-production)
Quota -> decreases supply (movement not a shift)
Price elastic -> measures responsiveness of Q demanded to a in Price $.

=%Q/%P

Revenue is maximized @ unitary elasticity

Portion of income; time;
Income : Demand = normal good;

Income : Demand = inferior good

Cross rate elasticity:

Price A : Demand B = Substitutes

Price A : Demand B = Complements

Price elasticity of demand = % Q / % P

Q / P is slope co-efficient

Accounting Profit = NI, Earnings, Bottom line, etc: Revenues explicit costs
Economic Profit (abnormal profit) = accounting profit less implicit costs
Normal profit = accounting profit that makes economic profit exactly $0.
Economic Rent value above the next best opportunity (Perfectly elastic supply = no rent)

Total Revenue = P X Q ; Avg Rev = TR / Q; MR = Increase in TR from selling 1 additional unit

In Perfect Competition, all Q sold at the same price (price takers)

avg Rev = MR = Price = D (flat)

Imperfect Competition: downward sloping demand curves -> price searchers; TR max @ 0 = MR
When MR Max product of labour begins to decline = diminishing marginal production and returns
TFC = total fixed cost (flat); TVC = total variable cost; TC = total costs
Marg Cost = in TC / in Q MC = TC / Q ; ATC = TC / Q; AFC = TFC / Q; AVC = TVC / Q
Distance between TVC and TC is TFC! And between AVC and ATC = AFC; AFC slopes downward
MC declines and then increases; intersects AVC and ATC @ their respective minimum points
If AR < ATC and AVC = shut down in the SR and LR

If AR < ATC but > AVC = operate in SR (to recover some FC) but shut down in LR
Imperfect:
TR = TC = breakeven
TC > TR > TVC operate in SR not LR;

TR<TVC = shut down in SR and LR you idiot!

LR ATC -> initially declines, then increases: stage = economies of scale; stage = diseconomies
Minimum point = minimum efficient scale
Perfect competition: produce until MR = MC (perfectly elastic horizontal demand curve)
Price = Demand : Produce Q @ MC = MR
Monopolistic: demand is elastic; differentiated products
Oligopoly: can have a kinked demand curve
Monopoly: high barriers to entry; copywrites; patents

Substitution effect: when price of Good X decreases, more of consumption of good X

Income effect: can increase or decrease consumption of a good.
+ive sub effect and +ive income effect = more of Good X
+ive sub effect and Ive income effect (but smaller) = more of good X
+ive sub effect and ive income effect (and bigger) = less of good X (Giffen Good) inferior good where
the ive income effect outweighs the +ive sub effect.
Veblen Good (like a luxury Good)

GDP: Lifes a bitch she aint fuckin for free

Nominal = Price in year X Q in year
Real = uses base year = pirce in T-5 x Q in T-1
GDP deflator: Converts nominal into real
= Nominal in year t / value of year t output @ year t-5 prices
GDP = C + I + G + (X-M): consumption, investment, govt spending, Xports and iMports
GDP = national income +CCA + statistical discrepancy
Expenditure approach = summing amounts spend on goods and services
Income approach = summing amounts earned by households and companies
GDP = C + S + T (Consumption + S household & business spending + Net Tax)
C + I + G + (X-M) = C + S + T re-arrange and
S = I + (G T) + (X M);
(G-T) = fiscal balance (govt spending tax receipt) +ive = surplus Ive is deficit;
(S-I) = private savings over investment
(X-M) ive = trade deficit; +ive = surplus
AD curve = downward sloping; Price Vs real income
AS Curve: VSR = perfectly inelastic; LR = perfectly elastic; SR = upward sloping (Price VS Real output)
Shifts in AD: Increase in consumer wealth; business expectations; consumer expectations, etc

Neo-Classical: s in S & D are primarily driven by technology

Keynesian: s in demand are due to expectations; believe that monetary and fiscal policy should be
prescribed
Monetarists: believe is caused by inappropriate decisions by monetary authority (money supply)
Austrian: caused by govt intervention
Frictional Unemployment: time-lag matching employers needs to employee skills
Structural: Long run changes in economy ; lack skills
Cyclical: economic activity
Inflation: persistent increase in price level over time ; Rate = % increase
CPI = (cost of basket @ current prices / cost of basket @ base period )X 100 (Laspeyres)
Disinflation is a inflation rate is decreasing over time but remains above zero.
Deflation is persistently decreasing price level.
Headline inflation = for all goods; Core inflation = exclude food and energy (they are volatile)
Hedonic pricing = technique used to adjust prices for quality changes
Fisher Index;
Paasche Index = current weights, prices from base period, and prices in current period
Cost-push inflation -> caused by decrease in supply
Demand pull -> caused by increase in demand (can exceed GDP)
Indicators:
Leading Indicators: direction before peaks and troughs
(avg weekly hours; manufacturing; avg ui claims; orders for new goods and materials, supplier
deliveries; building permits; housing; stock prices; S&P; Money Supply, M2; Interest rate spread)
Lagging Indicators: direction after the fact
Average duration of employment; inventory to sales ratio; labor cost per unit of output; averge prime
rate; commercial and industrial loans;
Coincident indicators: change at the same time
Employees on non-agricultural payroll; industrial production; trade sales

Fiscal Policy: Spending & Taxation to induce econ. activity; bdgt surplus and deficits; balanced budget
Monetary Policy: Central Banks actions that affect quantity of money supply and credit.
Expansionary; contractionary;
Money M1: currency, travelers cheques; dds; checking accounts
M2; includes M1+ savings accounts; time deposits <$100K; MM MFs
MV = PV: Money supply X velocity = price X real output
Fisher Effect: Nominal Rate = Real rate + expected inflation
Neutral interest rate = real trend rate of economic growth + inflation target
(right side higher = contractionary; right side lower = expansionary)
Fiscal multiplier = 1/1 mpc (1-t)

Absolute Advantage: produce @ lower cost of resources

Comparative advantage: opportunity cost is lower than the other guy
Opportunity of product A vs B: cost of A / cost of B = X units of B

Current Account
Capital Account
Financial Account
X-M: private savings + govt savings investment

Real exchange rate (domestic / foreign) = nominal rate x (CPI foreign / CPI domestic)
Direct Quote: one unit of foreign to domestic (eg. 0.60 USD / AUD) is direct for a Yankee,
Indirect: one unit home buys me X units away (ex above unit is indirect for an Aussie)
D forward/ F spot

= 1 + interest rate domestic / 1 + interst rate foriegn

Country w higher interest rate will DEPRECIATE!!!! (check it out uh)