Scarcity: insufficient supply: an insufficient supply of something, limited, cannot be remade.

The difference between scarcity and a shortage is that scarcity is just about anything in the universe, when something is limited it is scares. For example, fossil fuels are scarce because there is a limited amount and it cannot be replenished quickly. Shortage is when the supplier does not supply enough of an item when it is demanded. So in other words, when demand is higher than supply and shortage occurs. Opportunity Cost: The cost of passing up the next best choice when making a decision. EX: if you have 20$ to spend this weekend, and u decide to buy a really nice shirt you found at the mall. Your opportunity cost would be that you couldve gone to the movies instead of buying that shirt. Unintended consequences: are outcomes that are not the outcomes intended by a purposeful action. EX: if a government gives money to a bank hoping the bank will use the money in a purposeful way, instead the bank decides to give that money to the owners. Trade-offs: Alternative key objectives all of which cannot be attained together in a decision, design, or project and their associated benefits and opportunity costs. Tradeoffs play a particularly important part in negotiations where the positions of the opposing parties can be quantified. See also tradeoff. 4 factors of production: Land, labor, capital, and entrepreneurship. Most important Factor of Production: Entrepreneurship because it brings the other 3 factors together into an efficient system. Production Possibilities Curve (PPC): A curve that illustrates the production possibilities of an economy--the alternative combinations of two goods that an economy can produce with given resources and technology. A production possibilities curve (PPC) represents the boundary or frontier of the economy's production capabilities; hence it is also frequently termed a production possibilities frontier. The difference between shifting it and moving it is that when you shift it one of the factors of production has CHANGES, if you move along it means youre either using or not using the resources that are still the same. Three key questions every society must answer: What to produce. How to produce. Who gets the good and services produced.

5 economic Goals of society: 1. Economic Efficiency Getting the maximum output or a good from the resources used in production. 2. Equity of Fairness Good distribution of welfare. 3. Economic Growth Increase in output (real GDP) an expansion of production possibilities. 4. Economic Stability - Pursuing economic stability: avoiding economic and financial crisis, inflation and is a national concern. 5. Employment Growth Positive change in the level or production of goods and services by a country over a certain period of time. 4 Different types of Economies: Traditional economic system ishere's a shockershaped by tradition. The work that people do, the goods and services they provide, how they use and exchange resources all tend to follow long-established patterns. These economic systems are not very dynamicthings dont change very much. Standards of living are static; individuals dont enjoy much financial or occupational mobility. But economic behaviors and relationships are predictable. You know what you are supposed to do, who you trade with, and what to expect from others. Command economic system or planned economy, the government controls the economy. The state decides how to use and distribute resources. The government regulates prices and wages; it may even determine what sorts of work individuals do. Socialism is a type of command economic system. Historically, the government has assumed varying degrees of control over the economy in socialist countries. In some, only major industries have been subjected to government management; in others, the government has exercised far more extensive control over the economy. Market economies, economic decisions are made by individuals. The unfettered interaction of individuals and companies in the marketplace determines how resources are allocated and goods are distributed. Individuals choose how to invest their personal resourceswhat training to pursue, what jobs to take, what goods or services to produce. And individuals decide what to consume. Within a pure market economy the government is entirely absent from economic affairs. Mixed economic system combines elements of the market and command economy. Many economic decisions are made in the market by individuals. But the government also plays a role in the allocation and distribution of resources.

A free market economy can also be called a llaissez faire system. There is no government interference. It runs under the principle of Supply and demand otherwise known as Capitalism. A command economy is government regulated. Socialists and the Soviet Union often used it. Regulated prices and five year plans. The government controls all

factors of production. They tell you what to make how much to make, what price and where to sell it. Difference between Factor and Product Market Factor markets deal with the inputs of an economy, i.e. land, labor, and capital. Product markets deal with the outputs of a market, the finished item. In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. [1] This is a metaphor first coined by the economist Adam Smith. The exact phrase is used just three times in his writings, but has come to capture his important claim that by trying to maximize their own gains in a free market, individual ambition benefits society, even if the ambitious have no benevolent intentions. Incentive: A cost or benefit that motivates a decision or action by consumers, businesses, or other participants in the economy. The basic problems in a centrally planned economy are there is no incentives, therefore no invisible hand. Additionally the planner normally cannot predict the demand of specific items like boxers, therefore shortages happen quite often. Laissez Faire- letting the people do as they want without intervention. Applies to a pure free market economy. Law of Demand: A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa. In economics, demand is defined as the will to buy something that someone can afford. This means that the product -the person is interested in- should be within his financial reach. Quantity demanded is another powerful term that can govern an investors activity. It indicates the sum of the amount of services or goods demand at any given time. It does not depend on the equilibrium of the market. The demand curve is derived from a demand schedule. The demand schedule is a table of Price and Quantity demanded. The demand curve is the graph of the demand schedule. The difference between an individual and market demand curves and schedules is that individual ones are just that, one person only. Market takes the average of everybody who participates. The Determinants of Supply: 1. Income: A rise in a persons income will lead to an increase in demand (shift demand curve to the right); a fall will lead to a decrease in demand for normal goods. Goods whose demand varies inversely with income are called inferior goods (e.g. Hamburger Helper). 2. Consumer Preferences: Favorable change leads to an increase in demand, unfavorable change lead to a decrease.

3. Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease. 4. Price of related goods: A. Substitute goods (those that can be used to replace each other): price of substitute and demand for the other good are directly related. Example: If the price of coffee rises, the demand for tea should increase. B. Complement goods (those that can be used together): price of complement and demand for the other good are inversely related. Example: if the price of ice cream rises, the demand for ice-cream toppings will decrease. 5. Expectation of future: A. Future price: consumers current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices. B. Future income: consumers current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income. When you move along a demand curve none of your determinants have changed, only the price or quantity could make you move along the demand curve. Normal good is the most common type. It is said a good is normal when its consumption increases when the income increases. Like clothes, when your income increases you buy more clothes. The opposite happens with inferior goods, which consumption decreases when the available income increases. For example, used books and instant noodles: the more income you have the less used books and noodles you buy. Law of Supply: A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa. The curve is sloped the way it is because as the demand increased, so does the price because the providers want to sell more things. Just think about it, if you selling lemonade for a dollar, then everybody in your neighborhood wants it then wouldnt it be smart to raise the price to 1.50? Youd make 1.5* what your originally making. This law does not take in consideration the law of demand. Profit incentive: when businesses or individuals want to make money.

Supply refers to the entire relationship between prices and the quantity of this product supplied at each of these prices. should be thought of as "the supply curve." Quantity Supplied

 refers to one particular point on the supply curve (not the entire curve). refers to how much of the product is supplied at one particular price. is the horizontal distance between the vertical axis and the supply curve. Movement ALONG the supply curve: the movement along a supply curve only happens if the quantity supplies or the price changes, not any of the determinants. The Supply curve is derived from a supply schedule. The supply schedule is a table of Price and Quantity supplied. The supply curve is the graph of the supply schedule. The difference between an individual and market supply curves and schedules is that individual ones are just that, one person only. Market takes the average of everybody who participates in the market. Determinants of Supply: 1. Production cost: Since most private companies goal is profit maximization. Higher production cost will lower profit, thus hinder supply. Factors affecting production cost are: input prices, wage rate, government regulation and taxes, etc. 2. Technology: Technological improvements help reduce production cost and increase profit, thus stimulate higher supply. 3. Number of sellers: More sellers in the market increase the market supply. 4. Tax/ subsidy -a producer aims to maximize his profit, but an increase in tax will only increase his expenses, decreasing his capacity to buy resource supplies and forcing him to reduce his supply. Equilibrium is when the price and quantity meet the expectations of the place where the demand and supply curve meet. Disequilibrium is if the quantity and supply dont satisfy the equilibrium point. Excess demand: Shortage Excess supply: Surplus An effective floor or ceiling would have to be relatively close to the equilibrium to work so it wouldnt offset too much and it be easier for the suppliers/consumers to adjust to it. Example of Price Floor: minimum wage Example of Price Ceiling: On rent of housing Black Market: The illegal business of buying or selling goods or currency in violation of restrictions such as price controls or rationing. The 3 uses of money are: medium of exchange(buy stuff), store of value(save and buy later), measure of value( put a price on) The 6 characteristics of Money:

Acceptability: In terms of a form of currency being accepted within society, money must be accepted by everyone in the economy. This acceptance is for the purpose of the exchange of money for goods and different types of services. Divisibility: This relates to money being easily divided into smaller denominations for transactional purposes. People will only need as much money as is necessary for their purchases, therefore it is necessary for money to be easily broken down for different types of transactions. Durability: This simply refers to the physical wear and use of money over a period of time. If some money is easily destroyed or damaged it is likely that it is fraudulent and therefore cannot be trusted. Yet, money is made from a paper source, so some wear and tear must be expected. Limited supply: In order for money to retain its worth, there must be a type of limited supply. The more money that is in circulation the less it is valued by the economy. Portability: Quite simply it is necessary for money to be easily transported so that people can carry it around with them on a daily basis. This also allows for the ease of transaction so that money can be transferred from one place to another. Uniformity: Depending on the different types of currency that are available, money within that specific currency must look the same. This also allows for money to be counted and measured accurately. Commodity money is money whose value comes from a commodity out of which it is made. Representative money is a claim on a commodity, for example gold certificates or silver certificates. Fiat money is money that has value only because of government regulation or law. Functions of Financial Institutions: to store money, save money, make loans, making mortgages, and issuing credit cards. A money market mutual fund is a type of investment that buys short term debt obligations from highly rated companies and reliable government agencies Simple interest: a specific interest on only the principal, usualy paid once a year. Compound interest: an interest that builds on the principal plus the interest, normaly paid quarterly. Fractional Reserve Banking System: the banks hold 20% of the money they receive. Benefits our economy so the banks have money to give out at all times. Investment: use of money for future profit: the outlay of money, e.g. by depositing it in a bank or by buying stock in a company, with the object of making a profit Saving: the nonuse of income for a future purchase Risk: the chance of something going bad. Diversification: when you spread out your money to reduce risk. Risk vs. Return: the more risk the more return Prospectus: book that holds all the financial information of a company. Return vs liquidity: the more return the less liquidity, vice versa Types of Bonds: Government Bonds:

In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories: Bills - debt securities maturing in less than one year. Notes - debt securities maturing in one to 10 years. Bonds - debt securities maturing in more than 10 years. Municipal Bond: A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state in which the bond is issued. Corporate Bonds : A company can issue bonds just as it can issue stock. Time Deposits: is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money. A certificate of deposit is a time-deposit product. Maturity: when the deposit is available for withdrawal. Face Value: The nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity CD: certificate of Deposit. Difference between stocks and bonds: stocks you have ownership of the company and you can sell them or buy them at any time, also riskier but also a higher possibility of return. In Bonds: safer than stocks, and they are IOUs. Dividends: payments to the owners of a company when the company does not reinverse the profit. Risks of Buying Stocks: The company might face economic problems. 3 main stock Exchanges: NYSE, AMEX, NASDAQ Bear vs Bull Market: Bull refers to an investor who believes that a market or individual stock issue will rise in value. A bear is someone who believes the opposite, that the market or stock will drop in value. MSRP: manufacturer suggested retail price, you should not pay it. Invoice Price: price that the dealership pays for a car Trade-In-Value: the amount of money a dealer is willing to pay for a car. The appraisel of the car to the dealer. Warranty: protects your car from mechanical problems. The dealers MSRP is more expensive than their invoice.