Hey Econ students. This is Jacob Clifford welcome to the unit one
Macroeconomics summary video in this video series, I'm going to cover all the key graphs and all the key concepts for each  unit
But I'm going pretty quick so jump on board and let's go
Now we're gonna start with unit [one] basic economic concepts if you're here for the first time watch the entire video
But if you're here to review can click ahead by clicking on one of these okay?
We can cover six different things we're going to talk about what is economics introduce the idea of scarcity trade-offs opportunity cost
[they're] not cover key terms, then I'll talk about the economic systems the production possibilities curve
I'll talk about comparative advantage and go over a bunch of practice questions, and finally we'll finish up
I [talked] about supply and demand the first thing you should have already done is got the ultimate review packet
It looks like this
It's on my website and what you do is you watch this video and as we go through
Pause every once in a while to work out the questions and draw the graphs and do the other things that are inside the packet
Okay, now before we jump into the content. I want you to drop your pencil
I want you to do something right right now take your right [hand]
And I want you to this thumb out and then pinky out thumb out then pinky out thumb out pinky out
. Just like this
All right now stop. [I] want you to have both hands do it with me thumbs out pinkies out thumbs out think is that
Just like this
All right now [what] I want you to do is over again except this time thumb out pinky out thumb out pinky out sorry
So switch looks like this
Now it might seem stupid to you, but there's actually two. Main reasons. We did that and they're essential first. I want you to recognize
Economics is the same way it's going to start off real easy economics is just logic. That's all it is
It's just a bunch of lots puzzles, and it's very intuitive so it starts off really really easy
And you go this is [so] easy and it with two hands I can do this all day
And then all of a sudden it starts getting tricky right like drawing the graphs or doing the calculations
It's going to happen in this video. We're going to start off talking about the idea of comparative advantage very easy concept
Countries should specialize in trade right that makes sense, and then [you] start doing some [calculations] calculate the opportunity cost it's a little trickier
But not that hard and then [we'll] start doing something called terms of trade
It gets a lot more difficult so go slow make sure you get the concepts go through each one and then by the end
It'll be really easy to do the hard ones okay now the second reason
We do this activity was to find out if you can dissipate right when I asked you to do it
Did you do it?
Did you even try [now] if you didn't you're probably not going to use these videos the right way?
You're never going to be able to do economics if you don't actually try
I mean when you see me do this it looks like easy
I can do this all day long and [I] can do all the calculations and draw all the graphs of economics really easy
But it's going to be harder [for] you to do them
So you got to practice?
So when I say pause the video pause the video and write [down] that key term or do that calculation
Because it's going to help you. So please participate. [we're] going to start off talking about what economics is
It's the science of scarcity scarcity is the idea that we have unlimited wants and limited resources
[so] in your class the first thing your teacher is going to talk about most people think economics is about money
It's not it's about limited resources, so economics is how we deal with the idea?
We can't have everything and we're forced to make choices. It's really how individuals and societies deal with the idea [of] scarcity now
There's some key terms. I want you to go over there's a difference between microeconomics and macroeconomics
And there's actually two [different] courses, so if you're in college, you're probably taking micro or macro
And [they're] same thing for the ap test
Microeconomics is the study of small economic unit so looking at firms and individuals and their [decision-making] and governments as well
But macroeconomics is looking at the big picture the entire economy like inflation and unemployment
And gross domestic product and how the economy is doing is a recession
how can the government help to get out of a recession should the government help you out of a recession these are all concepts you'll
See a macroeconomics
Tradeoffs is another key concept. It's all the things you give up when you make a decision
But they're all the things not [just] one. So what's the trade-off of watching this video?
Well, you could be watching some other video. You could be
Hanging out with your friends you could be sleeping the time watching this video has a cost that things that you're giving up
But you can't do them all right. You can only actually have done one
The one best thing the thing you gave up is called your opportunity cost
[it's] the most desirable
Alternative when a choice is made now most people think and we talk about costs or talk about dollars and cents
But it's not just that right there's other concepts for example. Who you [should] date you have to decide
What's my opportunity cost if I date that girl for date that guy? Who's the person?
I'm giving up by dating them now this concept is the most important concept [in] economics and most importantly it sets you up for what?
One of the classes this class will change the way you make decisions
It's going to enlighten your mind to allow you to make better choices
Opportunity cost is the key to that whenever you make a choice guys think of well
What am I giving up to make this choice so this happens for individuals businesses for the government this idea of opportunity cost is huge?
Okay, there's five key economic assumptions
I'm going to go over each one of them pretty quick the first one all
Resources are scarce we have unlimited wants and limited resources and because of that we're forced to make choices that
Everything has a cost your teacher probably already told you there's no such thing as a free lunch, right?
So everything has a cost something that you gave up to get it
Everyone responds to incentives and acts in their own self-interest [right] and then for number four
Everyone makes decisions by looking at the additional benefit in the additional cost of your decision so you weigh the benefits and cost of every
decision and last one life can be explained kind of
Consigned of with grass you can use grass to explain life you can explain the economy with [grass]
It's not perfect, but you're going to see a lot of graphs in this class starting here in unit one
There's a couple other key terms
I want to cover really quickly first one is the idea of
Investment now when you hear the word invest music of stocks and bonds and retirement accounts
not in economics and economics
Investment is always when a business buys machines tools and capital for their own business so [that] they're buying things to improve their business now
I use the term I use this term capital you're going to see that to let people think capital is money, no
No, there's actually two types of good there's consumer goods which are made for direct consumption like pizza
and there's capital Goods capital Goods or tools machines to produce stuff, so
Blenders ovens knives those are the things for a pizza company, that's their capital now
There's also something called Human capital human capital is
The knowledge and skills required to produce things so like a doctor go to school a human capital and you can improve those things up
a time
now another thing you're gonna hear is something called the four factors of production when you produce something if you produce a computer produce a
Table if you produce a cell phone there's resources that go into it they can be categorized into four things
land labor capital and some people say entrepreneurship
So inside any product there's certain resources go into it who owns the resource Determines
What kind of economic system you have now let's look at the big picture scarcity means
There's not enough for everyone. [so] we have to figure out the best way to allocate our scarce resources now
How we do that determine something called our economic system. There's three three main
Economic questions every society has to answer what goods and services should be produced
How it should be produced and who consumes those goods and services so how do you figure this how to run?
Society well basically the idea is if you answer these questions the answers are all the government decides the government decides
That's one way to run, [Aasaiya] tea, and there's another way where individuals decide?
So the the way these questions are answered etre [munir] economic system
It's the methods society uses to produce and distribute goods and services now. There's really just two main types
We're going to talk about we go a lot more detail in other videos that the idea is
Centrally planned and free market economies the centrally planned
Economy is one where the government owns all the resources
It owns
Basically the workers and tells them where they can work and what jobs they should have the basic ideas came from the idea of Karl
Marx, and there's a bunch of other people who push the idea of
centrally planned economies now free market our
Capitalist economies come from the idea of a guy named Adam Smith he basically said let individuals
Decide what to produce and how to produce it [and] who gets it and let the market do it?
Oh, that's called capitalism now your stAndard Ap or college introductory course is going to talk about free market economies
they're going to [focus] on those because
really that's where most of the world is doing the most important concept in capitalism is the idea of the
Invisible hand the invisible hand is the idea that
societies goals
We met as individuals seek their own goals
So a business can't get rich and can't make money unless
They do something that you want like if I produce cars, [I] gotta make awesome cars. I'm going to make awesome computers
I got to make awesome phones
If I don't then people aren't going to buy them so they're going to make other people better off and so
Society's resources will go to the right place based on what we want produced competition and self-interest regulate the free market system now
there's all sorts of situations this doesn't work with Monopolies and
Externalities and other concepts you're going to learn in this course
But the idea the invisible hand is the reason why?
This computer was [not] made by [the] government that camera was not made by the government a lot of stuff around you is not made
By the government, it's regulated by the government. That's true
And that's not necessarily a bad thing
but we don't want the government saying exactly what to produce and how much to produce and who gets it that system hasn't worked and
That brings us to the idea of mixed economies a mixed economy is a system that has both free market and centrally planned
Like parts to it some government involvement in different things more government involvement in some countries than others
But if you want to learn more go ahead and click on one of these you've got economic thinkers, and you've got economic system
I did those with the crash course people. There's also a video of me going to China where this Chinese lady checked me out
It's pretty funny. Take a look anyways, let's move on now
It's time for the key graph in this course something called the production possibilities curve
Now your teacher might call it the production possibilities frontier the point is it's all the same thing
It's basically a model [that] shows the alternative ways we can use our scarce resources
It's going to show trade-offs scarcity opportunity cost efficiency all on one graph that starts off of the chart this chart showing bikes and computers
Abcd there's all different combinations
so we can produce all bikes and no computers or all computers and no bikes or some combination between
So if you actually plot this you come up with the production possibilities curve each point represents a specific [combination] of the two goods
We can produce at full employment using all of our resources
So if we take the chart put it on a graph, it's going to look like this
You've got bikes computers and you plot the different points
And you've got [Ohm] right here production [possibilities] curve
now a couple things you know first any point inside the curve is the idea of
inefficiency for producing only two computers and two bikes were being inefficient with our resources if we're producing any point on the curve then we're
Actually producing what's efficient? We're producing?
using all of our resources all of our workers all of our factors of production to produce the stuff and
Outside the curve you can't produce that quantity
there's just not enough resources right so we could if there [was] more technology, [and]
better resources
We could produce out there in the future but for right now for whatever reason
We cannot produce right here at [point] g [ok] there's a couple [different] shapes to this graph
And I want you to take a look at it. Let's talk about calzones and pizzas notice when you produce another pizza
You lose one calzone when you produce another pizza. You lose another calzone when you produce another pizza
You lose one more calzone [and] the opportunity cost here. It's constant when every single time you [participates] that you lose one calzone
That's called constant because and it shows you the resources between the two products are very similar
But there you can use resources for pizza the same resources for producing the calzones now. It's going result in a production possibilities [curve]
That's a straight line now. Let's look at a different scenario
Let's look at pizzas and robots right here when I produce the very first robot I gain one robot
But I've lose one pizza when I go here I gain one more robot
But now I lose three pizzas later on I gain one robot and I lose ten pizzas notice
I lost only one pizza here, and now I'm losing 10 pizzas something's going on
It's called the law of increasing opportunity cost as you produce more of anything the opportunity [costs] to produce
It's going to get bigger and bigger the reason why is because resources are not easily
adaptable between the production of these two products pizzas and robots let me explain why with an example if
We're producing combination a we're producing all [pizzas] so all workers including workers that are better Suited Towards robots are
Working at Producing pizza now when we move to combination B
We're moving out those
Scientists and those people who are good at making robots we gain one robot and we don't lose very many pizzas because they're not particularly
Good at making pizzas anyways now if you keep doing that you're going to keep moving resources away
or out of producing pizzas towards robots
But eventually you'll start using the resources that are better suited towards making pizza for example right here
We get only one more robot
But we're moving away these pizza makers who that's what their job [is] right Luigi working in the back of the pizza restaurant
He's way better at making pizzas, and he has robots so the opportunity cost is super high remember. It's [10] pizzas
We have to give up moving from D to e again this is called increasing opportunity cost
Let's see if you understand it with another example
We've got forks and spoons forks and apples which one of these is a straight line
And [which] one is a [bowed] out curve well right here forks and spoons straight line
That's constant opportunity costs and a boat out forks and apples. That's
Increasing opportunity cost the idea here is you produce more and more spoons you're going to give up the same amount of forks each time
But if you produce more and more apples, you give up a little bit of forex
And then more forks and more [trucks] and a whole lot of forks now
I've made a bunch of videos explaining this concept in fact I've made something called econ movies you haven't seen them
Take a look but I've explained it in this video also click here here
I haven't I'm not going to talk about shift the production possibilities curve in this video
But there is some practice questions on your packet make sure to try those because it's pretty self-explanatory [if] for whatever reasons. We have
like new
technology this entire curve can shift outward right we get more [forex] and more apples anyways go back and watch one of these videos if
You need more details one of the things I do want [to] cover is the idea of growth in the future
So take a look at two different countries. We've got panama over here. We've got Mexico over here
Let's say here's the production possibilities curve for [pano] they can produce consumer Goods and capital goods. Let's say
They're producing a certain combination. Which is producing a whole lot of consumer Goods now their future Growth curve
I'll put right here is out here alright. So they'll [have] growth over time
They'll be able to produce more in the long run, but over on this side. Take a look let's put another country
There's Mexico, and they're producing this combination less consumer Goods which sucks
They're getting less bananas and clothes and stuff like that
But they are getting a whole lot more capital goods the question is what can [the] future?
Curve going to look like [for] Mexico is it going to be the same distance out as
Panama is going to be farther out is it gonna be less growth? Well? It's right here. There's going to be way more growth
Why because capital is a resource the more capital you produce the more?
Production you can do in the future because capital is a shifter of the curve you can get more output by producing more capital
So I know it seems like I'm rushing through this stuff
And I'm not trying to but just trust me this first unit the beginning stuff is really easy
That's why I'm going really fast trust me. You're going to get it. It's easy now. I'm going to slow down
This is something that's a lot trickier. It's called specialization and trade
It's this idea of comparative advantage all right it starts off easy
The idea of Absolute advantage people are sometimes better at producing than other people so some people can produce things better than other people
This is the idea of absolute advantage
They can produce more [output] or they can use fewer resources produce the same output of some other person
They're just better at making things now the United States
Probably has an absolute advantage in the production of shoots
And we could probably produce a boatload of shoes if we wanted to because [we] could and we're just a very large powerful
Productive country, but we don't produce shoes we could we probably could produce the most of the entire world
But we don't we specialize in other things that we produce instead we let other countries specialize in shoes now
That's the idea of comparative advantage
Compared to the advantage the idea of having the production
Having a lower opportunity cost so I can produce this at a lower opportunity cost than somebody else the United States
produces very few shoes, but we produce a whole lot of things like Airplanes or
CGI movies right movies like Pixar movies
We produce a lot of computer movies because that's what we're good at and we have a lower opportunity cost in another country who can't?
Produce those things the idea here is that countries should?
specialize in trade when they have a comparative antigen if you're better at producing something that I am and
I'm not as good as that producing that thing and I'll
Specialize in the thing that I'm really [good] at we both can trade and we can both benefit right so I'll trade you the movies
You trade me the shoes. We both walk away happier. This is a production possibilities curve
it shows you how much sugar and wheat the us can produce and how much sugar and wheat brazil can produce now first question
Which country has an absolute advantage in the production of sugar?
Well, the united states they can produce 30 tons in Brazil can only produce 20 tons
So united States can produce more sugar as [we] [has] an absolute advantage in the production of wheat
well
the United States they produce 30 and
Brazil can only Produce 10
So you can see united states has an absolute advantage in both now people assume that if United States can produce more of both
We should produce both, but we don't this is the idea of international trade and comparative advantage, so I'm gonna work backwards here
but stay with me let's say United States specializes in wheat [and] Brazil
Specializes in producing the sugar and they trade one wheat for one-and-a-half sugar
[I'll] explain how I got that [number] later, but just stay with me take a look at this new production possibilities curve
[these] [are] the new numbers based on the trade if the united States producers all wheat then they can produce 30 wheat right there down
Here the producing 30 wheat and they trade one of their wheat and they get one-and-a-half sugar
They turn another one wheat they get another one and a half sugar with the trade
[alright] look down this number 20 wheat and 15 sugar 20 wheats it's right here 15 sugar is outside the curve
They're producing in fact they're consuming not producing
They're consuming outside the curve by trading because they're getting that sugar at a lower opportunity cost and if they produce themselves
Look at Brazil if Brazil Produce all sugar they produce 20 sugar they
Can trade one and a half sugar to get one week another one and a half sugar for one [leap]
I don't want to have sugar look at this number. You're five and ten five sugar is here
ten wheat is out here for both countries after trade their curves can shift Outward and they can consume more than if they could
produce on Their own
Right that's the idea of the benefits of trade now the question is how did I get those numbers?
This is the tricky part what you got to do when you do these questions first
You got to convert the graphs into a chart, so I've got the countries u.s. [and] brazil on the top
I've got wheat I've got sugar now
I just plug in the numbers the united States can produce 30 wheat or 30 sugar brazil can produce 10 wheat or 20 sugar?
So absolute advantage is really easy to spot it
Just whichever country can produce more in this case
So the United States can produce more wheat they have an absolute [advantage] in the production of wheat and in sugar now time to calculate
Comparative advantage to figure out the comparative advantage you got to figure out who has a lower opportunity cost
So you have to calculate what's called the per unit opportunity cost for each country now starts out pretty easy
And by the way the way I set it up is how I would do it with my students set up the chart
Draw it out every single time like this and practice this over and over again your review packet has several practice questions
But don't do them yet wait till I cover this first, and I'm also many of your trick. [so] keep watching
For the u.s. One-week cost one sugar if they produced one wheat [they're] giving up one sugar. That's the opportunity [cost] for
The us one sugar cost one week that's an easy one now
Here's my [question] for brazil how much does each one wheat cost well that right answer is [to]
One week cost to sugar [two] sugars
They could have produced but they can't produce it when they're producing wheat
On the other side each one of the sugar is the reciprocal it's [one-half]
So if they produce 20 sugar and they could be producing ten wheat [well] each one of the sugar cost
[1/2] a wheat they gave up
Now that [we] have this we can figure out the comparative advantage because we can find out who has a lower opportunity cost
So which countries should be producing the wheat who has a comparative advantage and wheat well the United States?
They have a lower opportunity cost and only cost them one sugar
Compared to brazil [that] cost them two sugars to have a lower opportunity cost when they write these questions
You can't have a comparative manage for both
So if you see a test question you find out that us has a comparative antigen week, you're done
You know for a fact that brazil [has] the comparative antigen sugar, but it always work out that way
But look at the numbers make sense to [1/2] is less [than] [1] the point is to figure out comparative advantage
[you've] got to calculate something called per unit opportunity cost now. There's two different types of questions
There's output questions, and there's input questions. So for this one. We've got Canada Mexico. This is number of planes
They can produce right here
And this is the cars they can produce so planes and cars
This is going to be an output question now on a test question they would give you more information
They say oh, this is number of planes and cars that Canada Mexico can produce, but I'm just setting it up
That's the idea of an output question now which country real quick has an absolute advantage in the production of planes. [oh]
Canada they can produce more planes than Mexico which country has an absolute advantage of production of cars
Yeah, Canada they can produce 20 and Mexico can only produce 10 so canada has an absolute advantage in both goods very true now
Let's go. Look down here this next one is the idea of
Australia [u.s.]. This is number of phones if they produce a hundred phones. This is if they produce a thousand bikes
This is number of hours. It takes to produce those 100 phones now
this is called an input question because the resource is what's variable here, so
50 hours to take to produce 100 phones this one us takes 40 hours per hundred phones and over here our strategy
hours per 1,000 bikes [us] takes 10 hours produced [1,000] bikes now the question is who has an
Absolute advantage in the production of Phones
The answer is the us notice now you're looking for a smaller number because we're looking for hours
It's better to use fewer resource in this case fewer hours to produce the phones in over who has an absolute advantage in the production
Of bikes well the [u.s.]. They take fewer hours notice the numbers are exactly the [same]
They're exactly the same numbers 50 40 2010 50 40 2010 the what matters is what the question is asking if it's an input question
And we're looking at hours or if an output question and we're looking at the number [of] things. They're producing the stuff
They're actually making now you can figure this question out by doing what I showed you [earlier]
Calculating the per unit opportunity cost for Canada so in this case would be one plane costs
[I'll] put equal signs for cost a certain number of cards given up in this case would be 2/5 of a car given up
right now you could do that, but it's really [time-consuming] and
Some students get uncomfortable it becomes difficult for them. So here's a trick
It's called the quick and dirty [now] the reason why it's [called] the quick and dirty because it is super quick
But it's dirty it's so academically dirty. It's just it's not cheating. It's just like yeah, you're not going to learn anything
You just just a trick that's going to work every single time
And all people who didn't watch the video up to this point?
Well they missed out because you're going to get the quick and dirty go ahead and tell all your friends about Mr.
Clifford did the quick and dirty with me was exciting
First you understand the idea that there's only two possible outcomes that's going to happen here to get comparative advantage
Canada should be producing the planes and Mexico would produce the cars right so it would be this situation right here
It would be this I'm a draw die angle diagonal representing
Canada would be producing planes and then Mexico cars or the other option is Mexico's Gonna be producing the planes and
Canada is in the car. So this other is the other possibility remember, you can't have a comparative advantage in both products
they can't have a comparative antigen producing both, so here's the quick and dirty so
50 times 10 gives you a certain total number of things produced which would be 500 right, so that's again
That's 50 times 10 well
They don't want is 40 times 20 40 times 20 is
800 now since 800 is more than 500 that means that is the right answer
Bam quick and dirty no doubt about it guaranteed you can do all the other calculations if you want
Mexico's Gonna be producing the planes and the Canada is going to be producing the cars right again
Here's a like that. I multiplied the possible outcomes
It's either this or this the one that gave me the most because that's what I want
I want the most stuff right that means as a comparative advantage, right?
That's the idea of getting comparative and and it is quick, and it is nerdy [now]. Let's go down here except remember
We're doing an input question so we're doing the same thing it's 50 right here times
10 which we already said is
500 or it's Gonna be the other option which is 40 times 20 which is?
800 so which one's the right option well? It's definitely 500 now
You're going to use [less]
hours to produce the phones and bikes and so no doubt about us should be producing the bikes and right here [a]
[Dehlia] should be producing the phones again
You [can] do all the other calculations if you wanted to but this is a quick and dirty way to get the right answer
Okay, how you doing you with me you get the concepts [all] right?
We're going to take it to the next level when I learn this idea of what's called terms of trade
Terms of trade is [that] both countries can benefit, but they don't benefit at every single term of trade for example
They have to have a certain number [of] cars traded for a certain number of planes to benefit both countries
So an example I gave you earlier was one week for one and a half sugar for Brazilian us would benefit both countries
How did I come with that number? Well? That's what you're going to figure out again. It's called terms of trade
It's agreed upon conditions. That would benefit both countries, so we've got an example question kenya, India
Pineapples Radios Thirty ten forty and forty what I want you to do right now is I want you to pause this video
I want you figure out who has an absolute advantage in
Pineapples and radios who has a comparative advantage in pineapples and radios also. I want you to try
No
You don't want to I don't want to do the quick and dirty but I want you to try to actually
Calculate the per your opportunity cost for each one of those and figure out who has a lower opportunity cost all right all right
Pause the video see how you do okay?
You got it here we go for [ten] yeah each one of those pineapples cost one-third of a radio
They gave up all right and each one of the radios cost three pineapples now though, India is pretty easy
It's one pineapple cost one radio one radio cost one pineapple now that we're there
It's time to figure out who has a comparative advantage who has a lower opportunity cost, and it's easy because you have the numbers
Right pineapples one-third from sorry for Kenya it cost one-third of radio for India costs one radio who would you rather have?
Producing the pineapples the one that is a lower opportunity cost so kenya should produce pineapples
I'm circling the one that has the lower opportunity cost the one who should specialize in
Pineapples right India has a lower opportunity cost one compared to three lower opportunity cost and producing the radios and [so] they have a comparative
Antigen dirty to check to see if you're actually right 30 times 40 gives you
1240 times 10 gives you
412 hundreds higher that must be it's ready answer done output question that's the quick and dirty, but we're not done number
We have to learn something called terms of trade, so we have to figure [out] each one radio can be traded how many
pineapples to benefit both countries
[I'll] tell you right now one radio for [ten] pineapples is good for one country but not good for the other country and one
radio for like a half a pineapple is good for one country but not the other so there's a
Range we have to get the right number in that range now. [I'll] help you out figure out
How you get this what you got to do is you look right [here]?
This tells you once you
Calculated this print opportunity cost the number for one radios for a certain [number] of pineapples has to be between three and one
All right for example two would work
So one radio four to buy apples would benefit both countries, but why is that well the reason?
Why is this if [Km] [tenure] Produces Radios by themselves so remember Keine?
Kaha Kenya is producing pineapples, right they're producing pebbles if they want to produce radios they're going to make them themselves
Or they got a trade form if they make of themselves, how much is a cost of well, it costs them 3 pineapples, right?
So if they produce themselves custom 3 they'd rather trade 2 pineapples and did a radio then they would produce
Give up 3 pineapples and get one radio by producing themselves, so this works for Kenya. They're like awesome. [that's] a great trade
It's better to give up [2] then [3] but now let's look in India right they can produce
Pineapples on their own if they do it's going to cost them 1 radio right so they produce a pineapple and it's going to cost
them 1 radio
but in this case they can give up [1] radio and get [2] pineapples right they give up 1 radio because they're
Specializing in radios they can get two pineapples as opposed to giving up a radio and getting only one pineapple themselves
So in this case
One radio for two pineapples benefits both countries and [that] they terms of trade that is great for both of [them], okay now
It's time for you to practice when you see me do it
It's really easy right I can do this I can figure out terms of trach and do like calculations
let's see if you can do it right now grab your ultimate review Packet try the
Output question in the input question that I gave you check the answers to verify you're actually getting it now
I'm not going to spend time going into it. There's also something called the circular flow model now
I'm not [going] [to] explain it here
[but] there's a video that explains the entire thing basically it shows you the relationship between households and businesses
And the [government] again, there's video which right there
You click on this it will explain the concept the basics that you need understand is the idea that
[businesses] supply [and] demand they supply products
But they demand resources and individuals you and me we also supply and demand right we demand products
But we supply our resources in the resource market so watch [that] video
It will explain the whole concept of the circular flow now the last thing we're going to do in this unit is talk about demand
And supply in [a] market now. This is super important. I've made awesome videos on this already covering the topic so right now
I'm going to do a pretty fast summer
I'm going quick right now also make sure when I'm done with this
take a look at the study guide or the review package do your best see if you understand the concept and if you're having a
Hard time filling this out then go watch the videos now
I'll tell you if you're getting it or not
Demand you already know this is what consumers are [willing] and able to pay and there's a relationship [between] price and quantity
So the definition demand demand is different quantities of goods that consumers are willing [able] to pay at different prices now
There's something called the law [of] demand the law demands shows you that there's an inverse relationship [between] price and quantity demanded
The price goes up for stuff people buy less of [that] stuff and the price goes down pillow buy more
It's pretty standard everyone knows it. That's the concept again
It's called a law of demand now that means that there's a demand curve on a graph if you have price and quantity
There's a demand curve in this case
Let's use milk if the price is up here right right there at 5 not very many people are gonna want to buy milk
But if the price is lower it only $1 per [gallon] the people going to buy more and so that downward sloping curve shows you
An inverse relationship between price and the quantity [demanded], but a demand curve can also shift
So if there's some other change other than price the demand curve can shift right or left, so if milk makes you smarter
There's some study that comes out says milk makes you smarter people who want more milk right and so at
Every single price people going to want more milk the entire curve will shift to the [right]
That's called an increase in demand now if something else happens
Let's say I milk causes baldness then that means less people want to buy milk the entire crib would shift to the left now
It's important to understand this idea of curve shifting right and shifting left
You're going to do a whole lot in this class now. How about this one?
What happens to the demand for milk if the price goes [up]? Well you might be like?
oh
The probably goes up demand will go down [or] no
The quantity demanded goes down remember if the price goes [up] the quantity demanded goes [down]
So the curve wouldn't shift it would just be a movement along the curve
So the price would go up right the quantity would decrease movement on the curve not a shift in the curve now
What shifts the curve is things other than price in fact here's the list of the five shifters of demand in the video?
That I was talking about covers these really well goes in more details, and it gives you more practice
And I'm going to do right here, but those are the shifters of demand. That's what causes the curve to shift now
Let's look at the other side supply
Supply is the different quantities of goods that producers are willing able to sell at different prices and of course
There's also the law of supply the law supply says and the price goes up
Producers want to produce more right because it can make more profit so price goes up. I'm gonna Produce more price goes down
I'm [gonna] Produce less that means we have a curve. What's the curve look like well?
It's an upward sloping curve right supply curve is upward sloping when the price is low from milk Producers
Don't want to produce very many the price goes up for milk
They want to produce a whole lot more, but it can also [shift] right so for example. If there's a new technology that produces
Milk faster that means the entire Supply curve would shift to the right
If the bunch of cows died I would decrease supply and shift it to the left remember
Increase is always right decrease is always less when it comes to supply and demand
Now that we understand that let's put supply and demand together right here
we get the idea of
Equilibrium the man hits supply at in this case $3 for a gallon of milk
And then the quantity is dot dot down right there in this case at 30 now. That's the price in quantity
It's going to happen in the market any given time
but there could be something weird happening for example if the price was really high let's say up here at
$4 then we're at disequilibrium in this case the quantity supplied is greater than the quantity made it right
So the price goes up people don't want to buy it so the quantumatic goes down
But Producers want to produce more and so the quantity a goes up the result is something called a surplus now the price was really
Low let's say down here at 2 then people want to buy more of it
So the quantum an goes up, but the price is low producers don't want to produce very many
So they'll produce less quantity supply to go down the result is a shortage right the quantum, and it is greater than quine supplied
That's the idea of a shortage now a surplus and the shortage might happen in market
but they don't stay that way equilibrium happens for a reason a
Shortage pushes the prices up a surplus pushes the prices down and a market should be at equilibrium when something weird is happening
Now if you haven't seen it yet, you [should] it's the Indiana Jones econ movies it talks about supply and demand and shifters
It's pretty good stuff
And it introduces some of the ideas that you need to be able to do
like the idea of shifting occur
So here we have an equilibrium for burgers
Demand supply and some price pe and quantity qe the question is what happens to the market for burgers at the price of ground beef?
triples, so the price of a key resource triples
It doesn't affect demand it affects supply
And if the triples that means supply is going to decrease they can't produce as much as they could before
When supply decreases it shifts to the left
And you just read the graph right right there it tells you the price went up and the quantity went down
What price will not quantity went down and that tells you? What happened to market?
Understand this general concept you can do a whole lot [more] of this stuff when it comes to aggregate demand and aggregate supply later in
Macroeconomics another key concept you have to understand is the idea of double shifts right so suppose the demand
Increase the same time supply increased well demand curve shift to the right supply curve shift to the right we started
equilibrium right here
We ended the equilibrium right here
Right so that tells you what happened on the graph and now it [looks] like quantity went up in price stay the same
but remember when it comes to double shifts the idea of price is
Indeterminate you can't tell it depends on the severity of the shift now
I've got another video explaining that concept called double shifts, but just right now remember
There's a key rule on the key rule is
Always when two curves shift at the same time either price or quantity is going to be indeterminate [the] last thing
I want to talk about is the idea of ceilings and floors
the government can mess up a market they can come in and set a price at a different spot or some sort of regulation in
This case a price ceiling is a maximum legal price a seller can charge for a product right so a price ceiling is
below equilibrium when it's binding
So it means the [government] says listen
You can't raise the price higher than you know a dollar for gasoline, and that might seem like a good idea
But if you look at the graph, it causes a shortage at a super low price Producers don't want to produce anything
Or don't want to produce that product people want to buy it and then the result is a shortage price floor is different
It's a minimum legal price a seller can sell a product so this case the government is keeping the price
super high keeping it from going down like you sell [Kxl] corn for less than
$300 can't low the hot price lower than that the result as the graph says is right here with a surplus
Right so with a super high price Producers want to produce a lot people don't really want to buy it [the] result is a surplus
Again, I know it seems like I'm rushing [through] this
But the reality is I've [made] great
Videos go ahead and click on one of these to watch any of those concepts and to learn it in more depth
Another reason why I'm going quick is because I don't [want] [you] to get bogged down in [markets]
I want you understand the general idea
It's going [to] make a whole lot more sense when you [look] at the big picture
Later in unit 3 now if you've watched the videos and you filled out the packet right now
It's time to do the multiple choice questions for unit 1
Try the questions check your answers if you're confused click on the learn more link
[it'll] send you back to a video to practice make sure you're getting it and then move on from there
Thank you so much for watching my videos make sure to subscribe like and leave a comment
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