Game Theory

The price system's limitations sometimes lead governments to intervene in the market. Governments may set prices by establishing price ceilings and price floors that are intended to protect producers and consumers from dramatic price swings. Managing prices interferes with the normal interaction between supply and demand, however, and can maintain or even worsen market imbalances. VIDEO OBJECTIVES - Explain why governments sometimes set prices - Explain what governments try to accomplish through price floors, price ceilings, and rationing - Explain what happens when governments manage prices

Business cycles are fluctuations in economic activity that occur in a market system as measured by increases or decreases in real Gross Domestic Product. Most economists agree that the level of economic activity have an impact on the business cycle. By analyzing key indicators, economists are able to determine the occurrence or duration of each phase of the business cycle and to predict where the economy is headed. VIDEO OBJECTIVES - Examine the four phases of the business cycle - Identify the three leading indicators used to determine the current phase of the business cycle, and predict where the economy is headed

Economists analyze price fluctuations by examining the price level, inflation, and deflation. They use both the consumer price index (CPI) and the producer price index (PPI) to measure the amount of fluctuation, estimating the pace at which the price level increases. These fluctuations can affect the purchasing power of the dollar, the value of real wages, interest rates, saving and investing, and production costs. VIDEO OBJECTIVES - Explain how economists evaluate price changes over time - Describe what causes inflation - Identify the main two price indexes that economists use to measure inflation - Explain how inflation affects the economy

Production decisions are affected by the need of maximize productivity and by the costs of production. When setting production levels, business owners must consider several factors regarding output, as well as the various costs associated with producing goods. VIDEO OBJECTIVES - Explain why producers look at productivity when making supply decisions - Describe how varying the levels of input affects the levels of output - Explain how changes in production costs affect producers' supply decisions

Business cycles are fluctuations in economic activity that occur in a market system as measured by increases or decreases in real Gross Domestic Product. Most economists agree that the level of economic activity have an impact on the business cycle. By analyzing key indicators, economists are able to determine the occurrence or duration of each phase of the business cycle and to predict where the economy is headed. VIDEO OBJECTIVES - Examine the four phases of the business cycle - Identify the three leading indicators used to determine the current phase of the business cycle, and predict where the economy is headed

The price system coordinates production decisions by steering producers and consumers toward market equilibrium. To reach equilibrium, producers must avoid surpluses and shortages frequently through a process of trial and error. A shift in either the demand or the supply curve can change a market's equilibrium point. VIDEO OBJECTIVES - Explain what market equilibrium is - Explain how the price system handles product surpluses and shortages - Explain how shifts in demand and supply affect market equilibrium

The economic system of the United States leans toward the market model. The fact that there is limited government involvement and regulation, however, means that the U.S. economy is not a pure market model. Because the economic system of the United States is based on the freedom to make choices, it is often referred to as a free-enterprise system. Economists use the circular flow model to illustrate how the economic resources, goods and services, and payments are exchanged in the U.S. free-enterprise system. VIDEO OBJECTIVES - Describe the main features of free enterprise in the United States - Name the two markets of the circular flow model - Explain how the circular flow model reflects exchange

Fiscal policy is influenced by the schools of supply-side economics and demand-side economics, both of which pursue the goal of economic growth. The chief tools of fiscal policy are marginal tax rates, tax incentives, government spending, public transfer payments, and the progressive income tax. Fiscal planners use these tools whether they believe in supply-side theory or demand-side theory. Several limitations can limit the effectiveness of fiscal policy on the economy. VIDEO OBJECTIVES - Explain how supply-side and demand-side theories differ - Identify the chief tools of fiscal policy - Describe the factors that limit the success of fiscal policy

Economic and political factors sometimes lead nations to restrict international trade. Nations are said to conduct free trade when international trade is not restricted by governments. In recent years, many nations have reduced trade barriers to increase international cooperation. Multinational corporations also increase international trade. Additionally, international joint ventures encourage cooperation among companies of different nations. VIDEO OBJECTIVES - Explain why nations impose trade barriers - Describe the key arguments made in favor of free trade - Describe the types of agreements that indicate that nations are following a policy of cooperation