Unit 1
Introduction
*The Difference between Macroeconomics vs.
Microeconomics
-
Macroeconomics is basically the entire economy
while microeconomics is the study of parts of the economy.
*Both macroeconomics and microeconomics contains
elements of positive economics and normative economics.
-
Positive – it claims that attempting to describe
the world as is it is very descriptive. (Fact)
Ø Positive
eco. Concern what is.
-
Normative- claims that attempt to prescribe how
the world should be. (Opinion)
Objective
Thinking
-
Biases
Ø People
bring a bundle of biases and preconceptions to the field of economics.
Ø The
economic terminology used in newspapers and popular magazines is sometimes
biased.
-
Fallacy
of composition- the assumption that what is true for one individual or
part of a whole is necessarily true for a group of individuals or the whole.
Chapter 2
*Needs vs. Wants
-
Needs are basic requirement for survival
-
Wants are desires of citizens much broader for
your needs
Ø Insatiable
or unlimited, means that our desires for goods and services cannot be
completely satisfied.
Ø For
a particular good or service can be satisfied; over a short period of time.
General goods that is a list that would probably never end.
*Scarcity vs. Shortage
-
Scarcity- most fundamental economic problem that
all society face.
-
Shortage- situation in which quantity demand is
greater than quantity supply.
*Goods
-
Consumer
good- is intended for final use
-
Capital good- is money (What bankers and
normal people would think)
Ø
But really is items used
in the creation of another good. (Example: Car is made with bolts, screws,
steel, glass, etc.)
* 5 Factors of production (Everything is by Choice)
1.
Land-
natural resources
2.
Labor-
any work that is exerted
3.
Capital
-
Physical
capital- human made to create other goods and services.
-
Human
Capital- knowledge and skills gain through work and education
4.
Entrepreneurship-
initiative, risk taker
Trade-
offs- alternative that we give up whenever we choose a course action over
another
Opportunity
cost- the most desirable alternative given up by making a decision
‘Guns on
butter’ – military and agriculture
*Production possibilities graph-
this shows the alternative ways to use resources
Ø Point
ABC is on the curve, which means they are efficient and attainable.
Ø Point
D on the other hand is inside the curve
·
The
Reason for it to be in the curve for example could be because of:
-
Recession
-
War or Famine
-
Underemployment/Unemployment
-
Population Loss
-
Resources are no available
Ø Point
E- Is unattainable and outside the curve
·
The
Reason is:
-
Economic Growth
-
Technology
5 Key
Assumptions on Production Possibilities Graph
1.
Two
goods are produced
2.
Full
employment
3.
Fixed
resources (land, labor, capital, entrepreneur)
4.
Fived
state of technology
5.
No
international trade
*Price Elasticity of demand- tells how drastically buyers cut
back or increase their demand for a good.
-
There
are Three Types:
Ø Elastic
demand- when demand changes greatly due to a change in price (wants)
Ex. Cable TV or Regular TV, cable is pricier then having regular.
E > 1
Ø Inelastic
demand- demand products will not change even if the price change, there are a
few substitute (needs)
Ex. Everyday needs, eggs, tooth paste, milk, etc.
E < 1
Ø Unit
elastic (unitary elastic) –
E=1
Surplus Shortage
Quantity
Supply > Quantity Demand QD >
QS
Ø Correcting- is a point supply and
demand at this point resources are used efficiently
Ø Disequilibrium- not intersecting, something
is happening
Ø Price ceiling (rent control) –
below equilibrium, it is a government imposed price control on how high a price
can be charged for product or service
Ø Price floor- minimum wage, above
the equilibrium it is a government imposed price control on how low someone can
change for a product or service
Marginal
cost- cost of producing 1 more unit of output; equal to the change in total
cost divided by the change in output
