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Economics (Micro Econ (Basics of Economics/Economic Thinking (Marginal…

- - - - Supply: The amount of product available for consumption and purchasing.
        
        Law of Supply: At higher prices, people choose to produce more. At lower prices, people choose to produce less.
        
        Supply Shifters:
        
        Number of producers/sellers in an area (if the number of sellers rises, supply will rise and vise versa).
        
        Costs of Production (The resources that are used to produce a good affect its cost.)
        
        Technological Change (improved tech can make production more efficient)
        
        Future Expectations about Prices (if a supplier expects the price of their good to rise in the future, they may store some of today's supply to sell it later and reap higher profits).
        
        Inferior Goods: Something that you buy more of as you get poorer (ex: ramen, Walmart)
        
        Normal Goods: Something that if you won the lottery, you would want to purchase it/more of it.
        
        Complementary Goods: Two things that you buy together, they go together. An example would be peanut butter and jelly.
      - Demand: The amount that people are willing to buy at a certain price.
        
        Law of Demand: At lower prices, people choose to buy more. At higher prices, people choose to buy less.
        
        20:80 Rule: The idea that 20% of your consumers make up 80% of your sales.
        
        Demand Shifters:
        
        A change in the population of available consumers.
        
        A change in income (normal vs. inferior goods). -- If the demand curve for a good shifts to the right as consumers' income increases, then that good is conserved to be a normal good.
        
        Change in the price of related goods (substitutes and complements)
        
        Change in expectations about future prices.
        
        Change in consumer information (ex: good or bad reviews)
        
        Change in Tastes and Preferences (things going out of 'style')
        
        Substitute Goods: Something that you buy instead of/in place of something else. An example would be cranberry juice instead of orange juice.
        
        Price Elasticity of Demand: Tells us how much price affects demand. It is the %change in quantity divided by the %change in price.
      - Market Equilibrium: When buyers want to buy the same number of shares that sellers want to sell.
        
        Shortage: When the demand for a product exceeds its supply.
        
        Surplus: When the supply for a product exceeds its demand.
    - - Price Floors: A legislated price minimum which legal trades cannot be made. Results in a surplus.
      - Price Ceilings: A legislated price maximum which legal trades cannot be made. Results in a shortage.
  - - - Paychecks
        
        Gross Pay: Amount of money before deductions, this is a happy number!
        
        Net Pay: What you get payed after all of the deductions.
        
        Deductions: Money that is taken out of your paycheck each month. Pays for things like taxes or healthcare.
        
        Voluntary: The money you sign up for to be taken out of your paycheck such as healthcare, vision, eco pass, unions, insurance, etc...
        
        Mandatory: Money that has to be taken out to pay for things such as social security or the military.
      - Taxation
        
        FICO Score: Your credit score!!! This is very important and follows you around for your whole life and determines a lot of very important things for you like whether or not you'll be able to buy a house and take out a mortgage.
        
        FICA Taxes: Separate federal tax that pays for old people's healthcare. FICA pays for medicare and social security.
        
        Colorado State Taxes: The Colorado state income tax rate is a flat rate of 4.63% no matter what your income is.
        
        Federal Taxes: Money the government takes and uses.
        
        Marginal Tax Rates/Brackets: How your paycheck is taxed by brackets. Depending on your income, you fall into different tax brackets and that decides how much tax you pay for each additional dollar of income. For example, for the first 50,000 dollars of your paycheck you could pay 3% tax, but for every additional dollar up to 75,000 dollars, you would pay 4% tax rate ONLY FOR THE ADDITIONAL DOLLARS ABOVE 50,000. These divisions are called tax brackets.
    - - Payday Loans: VERY DANGEROUS AND BAD!!! They are small, short term loans that make it possible for people who have bad credit/no credit to get loans. They charge absurd interest rates and create a vicious cycle that makes it necessary to keep borrowing money from these sneaky payday loan places.
      - Mortgages: A loan you take out to buy a house. Basically everyone takes out a mortgage if they want to buy a house.
        
        Fixed-Rate Mortgage: These are what you want!!! This is when the interest rate on your mortgage is chosen right when you take out the mortgage and can never be changed or adjusted.
        
        Sub-Prime Adjustable Rate Mortgages: These are mortgages that have interest rates that can be changed/raised whenever the bank wants to take more money from you.
  - - - Cost/benefit analysis: Analyzing the pros and cons and deciding if whether or not consuming another unit of product will be worth the cost and increase utility or have a cost that is too high that will only decrease utility.
      - Diminishing marginal utility: The change in utility (benefit, satisfaction) decreases for each additional unit of product
      - Utility Maximization: The perfect amount of consumption that maximizes your utility without going overboard or being too much.
    - - Positive Incentives: A reward that encourages certain behavior.
      - Negative Incentives: A punishment to encourage someone to do something/discourage someone from doing something.
      - Perverse Incentives: Accidentally encourage bad behavior.
    - - Labor: Human effort used to produce goods and services
      - Capital: Tools of production
      - Land: Natural Recourses before
        they are changed by human effort
    - - Macroeconomics: The study of different economies as a whole - at a national or other large group level.
      - Microeconomics: The study of individual decision making and economics on the smaller, more individual scale.
- - - - GDP equation:
        GDP = C+I+G+NX
        C= consumer spending/consumption (in the US it makes up 70% of our GDP)
        I = Business Investment
        G = Government (not including transfer payments)
        Nx = Net exports (total value of exports to other countries - all imports)
    - - Frictional Unemployment: Switching to other jobs (between)
      - Structural Unemployment: No more demand for a certain labor.
      - Cyclical Unemployment: Caused by a recession (economy plumets)
    - - Secondary Sector: Secondary economic activities deal with processing raw materials acquired through primary activities into finished products of greater value. Ex: factories and manufacturing.
      - Tertiary Sector: Focus on moving, selling, and trading the products made in primary and secondary activities. This also includes services such as banks, carpet cleaning, fast food, etc...
      - Primary Sector: The part of the economy in which activities revolve around getting raw materials from the earth. An example would be farming or fishing.
      - Underground Economy: All the illegal production of goods and services. Examples are drug dealing, prostitution, sports betting, etc... This also includes legal production of goods and services that does not pass through markets (babysitting, mowing lawns).
  - - - Contractionary Phase: When the real GDP is in decline. When we are in the contractionary phase for 2 consecutive quarters, we are in a recession.
      - Technical Definition of Recession: When the real GDP is in decline for 2 consecutive quarters. It's when the economy plummets.
      - Expansionary Phase: When the economy grows faster than average (the up phase)
    - - Marginal Propensity to Consume (MPC): How much is spent out of an extra dollar of income. If you're given an extra dollar, how much would you spend? Young people have a high MPC (if you give them an extra dollar they'll spend it).
      - Fiscal Policy multipliers (how do you calculate this?): Multiplier = 1/(1-MPC) and then you plug into that equation to find amount change in GDP. Change in REAL GDP = Initial change in spending X multiplier.
      - Expansionary vs. contractionary fiscal policy (when is each appropriate?): Expansionary is used to fight recession and high unemployment, it involves increase in spending and decrease in taxes. Contractionary is used to fight inflation and prevent the economy from "overheating. It involves decreasing spending and increasing taxes to lower deficits and reducing government debts.
      - Debt: The total amount of money we are in debt over all of the years of borrowing and not paying it back.
      - Deficit: The yearly debt racked up by the U.S. Government.
    - - When to use Contractionary measures?: Contractionary is used to fight inflation and prevent the economy from "overheating. It involves decreasing spending and increasing taxes to lower deficits and reducing government debts.
      - When to use Expansionary measures?: Expansionary is used to fight recession and high unemployment, it involves increase in spending and decrease in taxes
      - Fractional Reserve Banking and the Money Supply: a system in which only a fraction of the deposits are backed by actual cash on hand and are available for withdrawal.
        
        Federal Reserve: The people who control the money supply. They are Americas "Central bank". They are independent from politics, supervise all banks, and is made up of 7 members of the Board of Governors. They serve 14 year terms.
        
        What is the "dual mandate?": The fed aims for stable prices, high employment, and moderate long term interest rates.
        
        What tools do they use to control the money supply?: The Fed can change the "discount rate" which is the interest rate that banks have to pay to borrow money from the Fed, they can change the reserve requirements which is how much banks must keep in reserves, they can do open market operations which is when the Fed buys and sells Treasury bonds, and they can pay banks interest on excess reserves.
        
        Reserve requirement: How much banks must keep in reserves (locked up and not loaned out).
        
        Discount Rate: The interest rate that banks have to pay to borrow money from the Fed.
        
        Open market operations (aka buying government securities): When the Fed buys government Treasury bonds.
        
        Paying interest on excess reserves: Setting the interest rate high encourages banks to keep more, and setting lower rates encourages banks to keep less and make more loans.
        
        How is the Fed organized?: Made up of 7 members, independent of politics, serve 14 year terms. 1/7 is the leader of the board and they are called the Fed Chair. Current one is Jerome H Powell.
      - 2009 Recession: When the 8 trillion dollar housing bubble burst that was built on crappily-rated loans bundled into huge mortgage backed securities that were disguised as triple A rated.
        
        Mortgage Backed Security (pros and cons?: A HUGE collection/bundle of mortgages. Pros are that banks can sell them and make money and stimulate the economy, cons are that banks are too big to break so they can cheat and bundle really crappy loans and hide them behind really good loans and get away with it and cause a recession like in 2009.
        
        Credit Default Sawp: Buying CDS basically means that you are betting against the housing market and betting for the market to crash.
      - Differing Philosophies
        
        "Animal Spirits": The fear fairy that comes to town and makes everyone want to hold onto their money when times are really bad.
        
        Keynes vs. Hayek: Keynes is more popular, he thinks that government needs to be involved to make recessions less detrimental to the economy. Hayek believes that government involvement only makes it worse, and that we might need to wait it out in a really bad recession for a while, but that will at least stop the "sugar high" our economy is on.
        
        Paradox of thrift: Keynes idea that we hold onto our cash and don't take risks when we are afraid.
        
        Fiscal and monetary "sugar high": Hayek's idea that if markets are going to work properly, they need to be freed from government interference. When Government spends money it doesn't have (fiscal policy) and makes borrowing money cheap (monetary policy) it causes artificial booms in the economy. The boost in consumption might work for a minute, but it won't solve the underlying issue.