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Economics (Micro (Economic Thinking (Factors Of Production (Land: Natural…

- - - - Cost/Benefit Analysis: Do the pros outweigh the cons, does the benefit outweigh cost? Benefits usually decrease marginally.
    - - Positive: Rewards. (Give something.)
      - Negative: Punishments. (Take something away.)
      - Perverse: Accidentally encouraging the wrong behavior.
    - - Land: Natural resources before they're changed by human effort
      - Labor: Human effort used to produce goods/services
      - Capital: Tools for production
      - Extra- Entrepreneur: The person who brings all of the factors together
  - - - Gross Pay: Your pay before deductions. (Taxes.)
      - Net Pay: Money left to you after deductions.
    - - Federal Tax: Go to the Federal Gov.
        
        Marginal Tax Brackets
      - State Taxes (Co): 4.63% of their income in taxes. Goes to state needs like the cops, firefighters, roads.
      - FICA (Federal Insurance Contribution Act) Taxes: Goes to things like Medicare (Health care for old people) or Social Security (Income for old people).
    - - Mandatory: Things like Federal Taxes, FICA Taxes, and State Taxes.
      - Voluntary: Things you sign up for. (Vision Healthcare)
    - - A short term loan with high interest rates that you will pay back when you get your next paycheck.
      - They are predatory. They are almost impossible to pay back because of the high interest rates.
    - - Sub-Prime/Adjustable Rate Mortgage: Riskier, the bank can decide to change the rate if they want
      - Prime/Fixed-Rate Mortgage: Safer, the bank cannot change the rate and it lasts for a set amount of time
  - - - Law of Supply: At higher prices people produce more. At lower prices people produce less.
        
        Shifters
        
        Number of producers/sellers in an area. If the # of sellers increase, supply will increase & vice versa.
        
        Costs of production. The resources that are used to produce a good affect it's cost. (Land, labor, capital.)
        
        Technological change. Improved tech/machinery.
        
        Future expectations about prices. If the supplier expects the price of their good to rise in the future, they may stockpile it to sell it later for higher prices.
        
        Definition of Supply: As prices increase, sellers are more willing/able to produce more of a good- therefore the quantity supplied increases.
        
        20-80 Rule: 20% of the consumers make up 80% of the sales.
      - Law of Demand: At lower prices people buy more. At higher prices people buy less
        
        Shifters
        
        A change in the population of consumers.
        
        Change in Income. (Normal -vs- Inferior Goods.)
        
        Change in the price of a related good. (Complementary or substitute.) Jelly sales would affect peanut butter sales.
        
        Change in expectations about future prices. (If there's a sale on sofas on Sunday, I'll wait until Sunday to buy a sofa.)
        
        Change in consumer info. (Reviews or news, amount of good available.)
        
        Change in tastes/preferences. As consumers come to know/like a good, demand will increase. (Trends.)
        
        Price Elasticity: How responsive demand is to change in price.
        
        Price Inelasticity: Makes a steep graph (Small change in demand.) < 1
        
        PED = %Change in Quantity Demanded/%Change in Price
        
        Price Elasticity: Makes a shallow graph (Large change in demand.) > 1
        
        | = Unit elasticity, quantity mirrors price
        
        Determinant Factors
        
        Wether substitutes are available
        
        If the good is a necessity or a luxury. (Food -vs- Jewelry.)
        
        How much of the consumers budget it spent on the good
        
        The time period when the change is considered
        
        Definition of Demand: What a buyer is both willing & able to buy.
    - - Surplus: When more in produced than is demanded.
      - Shortage: When more is demanded than in produced.
    - - Normal: If I won the lottery, would I buy more of this thing? If yes; it's a normal good.
      - Inferior: If I won the lottery, would I buy more of this thing? If no; it's an inferior good.
      - Complementary: The way jelly is to peanut butter.
      - Substitute: The way Pepsi is to Coke.
    - - Ceilings: Can't go any higher. Ceilings create shortages. (Apartment renters, shortage of willing renters.)
      - Floors: The price can't go any lower. Floors create surpluses. (Minimum wage, surplus = unemployment.)
  - - - Libertarianism: Free will should always be important, even with dumb choices. (All responsibility is on the person.)
      - Paternalism: Making choices for someone to make them better off. (Laws such as seatbelt laws.)
- - - - Nominal GDP: Raw numbers, we don't want this type of GDP
      - Real GDP: Nominal GDP while accounting for inflation, we want this type of GDP
      - Equation: GDP= C(Consumption)+ I(Business Investment) + G(Government) + NX(Net Exports)
    - - Unemployment Rate = # of Unemployed People/Labor Force
      - Frictional: People in between jobs or in school.
      - Structural: Obsolete jobs. (Secretary to iPhone, Cab to Uber.)
      - Cyclical: Unemployment due to a recession.
    - - Primary: Getting raw materials from the earth. (Fishing, farming, mining.)
      - Secondary: Processing raw materials into products. (Factories, manufacturing.)
      - Tertiary: Moving, selling, and trading products. (Banks, Fast Food, Grocery Stores.)
      - Underground: Any transactions not recorded legally. (Drug Dealing, Prostitution, Babysitting.)
  - - - Fiscal: Change to taxes & spending.
        
        Expansionary: Used to fight recessions or high unemployment. (Increase spending, lower taxes, gov. runs a deficit.)
        
        Contractionary: Used to fight inflation, to prevent an economy from "overheating".
        
        Multipliers
        
        Government spending will create more spending as the money moves through the economy.
        
        MPC (Marginal Propensity to Consume): If you're given an extra dollar, how much of it would you spend?
        
        Government changes to taxes and spending
      - Monetary: Change to the supply of money.
        
        Fiat Money: Currency w nothing of value backing them up except the fact that its legal tender
        
        Gold Standard: $1 used to be equivalent to a certain amount of gold.
        
        Functions of Money
        
        Unit of Exchange: Something to make trading and buying more simple.
        
        Unit of Account: Measuring or comparing the value of something.
        
        Store of Value: Money represents a certain value, making it a store of value
        
        Fractional Reserve & The money supply: Banks create money but it doesn't really exist physically
        
        Federal Reserve
        
        What is the fed: Maximize sustainable employment and maintain stable prices
        
        The Federal Reserve has operated under a mandate from Congress to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates" — what is now commonly referred to as the Fed's "dual mandate."
        
        Tools to control the money supply
        
        Rserve Requirement: Feds determine how much money they have to keep in reserves
        
        Discount Rate: The interest rate that banks have to pay to borrow money from the fed
        
        Open Market Operations: Buying government securities, the fed buys and sells treasury bonds which are IOU's from the government from current owners, this increases money circulation
        
        Paying interest on excess reserves: Banks are required to hold a certain amount in reserves but they often keep more than is required
    - - Mortgage Backed Security: Selling bundle of loans to a bigger bank.
      - Credit Default Swap: Insurance on bonds
    - - Expansionary Phase: Economy grows faster than average.
      - Contractionary Phase: Real GDP in decline (2 consecutive quarters=recession.)
    - - Debt: Something that is owed/due.
      - Deficit: Similar to a shortage. Difference between cash inflows and outflows.