GDP n GNP

GDP n' GNP

GDP- Gross Domestic Profit- Total value of all final goods and services produced within a country's 
borders. Produced within that particular year. Includes all production or income earned within the US the US and foreign producers. Excludes production outside of the US even by Americans

GNP(Gross National Product) Total value of all final goods produced by Americans within a year includes production or income earned by Americans anywhere in the world, it excludes production by non Americans even in the U.S

GDP= C+Ig+G+Xn

C=Consumption 67%
Ig- Gross Private Domestic Investment 18% Ex- construction of house, unsold inventory of products built in a year.
G- Government Spending 17% Ex- Guns, missles, school buses, teacher salaries
Xn- Net Exports (Exports-Imports) -2%


Included- C, Ig,G. Xn
Excluded- intermediate goods, avoid double or multiple counting, used or secondhand goods, stocks and bonds(it is a purely financial transaction), Gifts/ transferred payments(public or private)(scholarships, social security, unemployment), Illegal activities, Unreported business activities(tips), Non-market activity(volunteer, babysitting, repair work for one self)

Elasticity of Demand

Elastic Demand- Demand is sensitive to change, product is not a necessity, there are available substitutes. E>1
ex- Soda, Steak, fur coat

Inelastic Demand- Demand that is not sensitive to a change in price. Product is a necessity, few or no substitutes. E<1
Ex: Gas, insulin

Unitary Elastic- E=1

Step 1- Quantity. New Quantity- Old Quantity/ Old Quantity
Step 2- Price
Step 3- PED % change in quantity/ %  change in price
Total Revenue- total amount of money a firm receives from selling goods and services.
Price x Quantity

Fixed Cost- A cost that does not change no matter how much of a good is produced.    
Ex-Rent mortage, salary


Variable Cost- A cost that rises or falls, depending on how much is produced
Ex- Electricity,

TFC+TVC=TC
AFC+AVC= ATC
TFC/Q=AFC
TVC/Q=AVC
TC/Q=ATC

TFC=AFCxQ
TVC=AVCxQ

MARGINAL COST---NEW COST- OLD TC

Factors of Of Production

Land- Natural Resources

Labor- Work exerted

Human capital- People acquire skill and knowledge through experience and education,

Physical capital- Money, tools, equipment and machinery.

Entrepreneurship- Risk taker, innovative mind

Trade-off- An alternative we sacrifice, when we make a decision.

Opportunity Cost- Most desirable alternative given up as a result of a decision. (next best alternative)

Guns or butter- Phrase, refers to trade off that nations face, when choosing whether to produce more or less military or consumer goods.

Thinking at the margins- Deciding whether to add or subtract one additional unit o some resource.

Production Possibilities Graph (PPG)
                                       Curve (PPC)
                                       Frontier (PPF)

Full Employment- not 100% productive, not 100% employed
Full Employment- 4-5% unemployment, 80-90% factory capacity

Basic Concept of Economics 

Macroeconomics- Study of economy as a whole. International trade, Inflation
Microeconomics- Study of individual of specific units of the economy. (Decisions that households make and how they interact in the market)

Positive Economic- Claims that attempt to describe the world as is, very descriptive in nature, based upon facts.

Normative Economics- Claims that attempt to prescribe how the world should be (opinion based)

Needs- Basic Req. for survival 
Wants- Desires

Scarcity- Fundamental economical problem that all societies face (how to satisfy unlimited wants w limited resources.

Shortage- Occurs when quantity is demanded is greater than quantity supplied (QD>QS)

Goods v. Services

Goods- tangible commodities- brought, traded, reproduced, capital goods and consumer goods

Cap.- items used in the creation of other goods

Consumer- Goods that are intended for final use for the consumer 

Services- Work that is performed for someone.