UNIT 1 NOTES
Macroeconomics is the study of the major components of the economy. Ex Inflation, GDP, International Trade
Microeconomics is
the study of how households and firms make decisions and how they interact in
market. Ex Supply and demand and market structure.
MIC VS MAC |
Positive: Claims that attempt
to describe the world as is. Very descriptive. (Fact based.) Ex Minimum wage laws
causes unemployment.
Normative: Claims that attempt
to prescribe how the world should be. Very prescriptive in nature. Opinion
based. Ex the government should raise minimum wage.
Needs vs. Wants
Needs: are basic requirements for
survival. Ex Food, water
Wants: desire of citizens.
Broader than your needs.
Scarcity vs. Shortage
Scarcity: The most fundamental economic problem facing
all society. Satisfying limited wants with limited resources. (Limited) Ex Oil,
Gold
Shortage: Where quantity
demanded is greater than quantity supply.
Ex: clothes
Consumer goods and capital goods.
Consumer: goods that are
intended for final use by the consumer. Ex Candy Bar, Car
Capital goods:
Items used in the creation of other goods. Ex factory machinery and trucks.
Services: Work that is
performed for someone else.
Factors of production:
1-Land: natural resources
2-Labor: work force
3-Capital
(Human Capital): knowledge and skills
(Physical Capital): Human made objects made for other goods
and services
Entrepreneurship:
innovator and risk taker.
Trade offs are alternatives
that we give up when we choose one action over the other.
Opportunity cost is
the most desirable alternative given up by making a decision.
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| Example of a PPG |
Production Efficiency:
producing at the lowest cost and allocating resources efficiently and full
employment of resources
Allocative Efficiency:
where to produce on the curve
Elasticity of demand-
tells how drastically buyers will cut back when prises rises.
Elastic Demand-When
demand will change greatly given a small change in price
Wants: movie tickets, steaks,
Inelastic Demand-
your demand for a product will not change regardless of price
Needs: Medicine, milk, gas
Unit Elastic-
demand for a product doesn't change.
