Economics and Business Environment: Markets and Policy
Microeconomics
Understand supply and demand, equilibrium, elasticity, and the effect of price controls. A price ceiling below equilibrium creates shortage; a price floor above equilibrium creates surplus. Know elasticity's link to total revenue: with elastic demand, a price cut raises revenue; with inelastic demand, it lowers revenue. Distinguish fixed and variable costs, economies of scale, and the four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly.
Macroeconomics
Track GDP, unemployment, and inflation. GDP counts final goods and services produced domestically within a period; transfer payments and intermediate goods are excluded. Unemployment types include frictional, structural, and cyclical. Inflation erodes purchasing power; nominal values differ from real values. Know the business cycle phases and the tools of fiscal policy (government spending and taxation) versus monetary policy (open-market operations, reserve requirements, discount rate).
International and regulation
Exchange-rate movements affect exporters and importers in opposite directions. A weaker currency makes exports cheaper and imports dearer. Trade barriers include tariffs, quotas, and subsidies.
Worked rule of thumb
If nominal GDP rises 8 percent and the price index rises 5 percent, real growth is roughly 3 percent. A trap: treating a government transfer payment as part of GDP, or confusing a change in the price level with a change in output. For elasticity, compute percentage changes and compare to the revenue direction.