Economic theories

Module 18: Aggregate Supply -How the aggregate supply curve illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy -What factors can shift the aggregate supply curve -Why the aggregate supply curve is different in the short run from in the long run ? Aggregate Supply Aggregate Supply Curve: relationship between the aggregate price level and the quantity of aggregate output supplied in the economy The Short-Run Aggregate Supply Curve: relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run Rise in the aggregate price level = rise in the quantity of aggregate output supplied

?? Chapter 4: Comparative Advantage and Trade Trade: people divide tasks among themselves and each person provides a good or service that other people want in return for different goods and services wanted Gains from Trade: dividing tasks allows for more people to get more of what they want Specialization: When gains from trade are caused by division of tasks Adam Smith?s (1776) The Wealth of Nations: 18th century pin factory where each person specializes in the production of one thing Production Possibilities: curve model is particularly useful for illustrating gains from trade based on comparative advantage Most important insights in all of economics is that there are gains from trade even if one of the trading parties isn?t especially good at anything

Chapter 1: The Study of Economics ? Economics: The study of scarcity and choice- individual choice Individual Choice: Decisions made by an individual of what to/not to do Economy: System that coordinates consumption and distribution of goods/services Market Economy: Decentralized production, publicly owned, no authority saying what to/not to make (ex: United States) Command Economy: Central authority, publicly owner, don?t work very well (ex: Soviet Russia) Problem: lack of motivation, better quality work doesn?t make more money, ineffective supply&demand Property rights: Establishes ownership causing incentive to work and thus production to increase Marginal Analysis: Study of marginal decisions, the pros and cons of doing a little bit more or less