Unit One Notes Macroeconomics

Jan. 5, 2016

Unit 1

·      Macroeconomics- study of the economy as a whole (looking at the big picture)

Inflation

International trade

Wages

·      Microeconomics- study of individual or specific units of the economy

supply &demand

market structures

business organizations

·      Positive economics- attempts to describes the world as is.

Very descriptive, describes “what is”, collect and presents facts

·      Normative Economics- attempts to prescribe the world should be

“ought to be”, “should be”

Opinion

·      Needs- basic requirements for survival

·      Wants- desires of citizens

·      Goods- Tangible commodities

Capital goods- items used in the creation of other goods

Consumer goods- goods that are intended for final use by the consumer.

·      Services- work that is performed for someone. Ex. Education, concerts

·      Scarcity-the most fundamental economic problem that all societies face

How to satisfy unlimited wants with limited resources

·      Shortage- quantity demanded is greater than quantity supplied.

·      Factors of production- resources required to produce goods and services.

1.     Land- natural resources

2.     Labor- work force

3.     Capital- human capital/ physical capital

4.     Entrepreneurship- innovation/ risk taken 

Jan. 6. 2016

·      Capital:

·      Physical capital- tools, machines, factories, robot

·      Human Capital- knowledge, skills, abilities, and talents that are gained through education and work experience.

·      Trade offs- Alternatives that we give up when we choose one course of action over another.

·      Opportunity costs- the next best alternative

·      Production possibility graphs (PPG)- shows alternative ways to use an economy’s resources.

·      4 assumptions of a (PPG)

1.     Two goods

2.     Fixed resources (Land, capital, ent., labor)

3.     Fixed technology

4.     Full employment of resources

·      Efficiency- using resources in such a way as to maximize the production of goods and services.

·      Allocative efficiency- the products being produced are the ones most desired by society

·      Productive efficiency- products are being produced in the least costly way and this is any point on the production possibility curve.

·      Underutilization- using fewer resources than an economy is capable of using.

·      3 types of movement that occur within the PPC

1.     Inside of the curve- it occurs when resources are unemployed or under employed

2.     Along the PPC

3.     Shifts of the PPC

Jan. 7, 2016

·      What causes the PPC/PPF to shift?

1.     Technological changes

2.     Economic growth

3.     Change (delta) in resources

4.     Change (delta) in the labor force

5.     Natural disasters/war/famine

6.     More education & training (human capital)

·      Inside the curve--> attainable but inefficient/ Underutilization

·      On the curve--> Attainable and efficient

·      Outside the curve-->unattainable

Jan. 14, 2016

·      Elasticity of demand- A measure of how consumers react to change in price.

·      Elastic Demand- Demand that is very sensitive to a change in price.

1.     Always greater than 1

2.     The product is not a necessity

3.   The product

·      Inelastic demand- a demand that is not very sensitive to a change in price

·      Less than 1

1.     The product is a necessity

2.     There are few or no substitutes

3.     People will buy no matter what

·      Unitary Demand is always equal to one.

Elastic	Inelastic
Soda	Gas
Steaks	Salt
Candy	Milk
Candy	Insulin/ Medicine
Fur Coat	Toothpaste

·      Price elasticity of demand (PED)

Step 1: Quantity- Take new quantity- old quantity/ Old quantity

Step 2: Price- New Price- old price/ old price

Step 3: %Din quantity demand/ %Din price= PED (absolute value)

PT. 2

·      Total Revenue- the total amount of money a firm receives from selling goods and services.  PxQ= TR

·      Fixed Cost- a cost that doesn’t change no matter how much is being produced. Ex. Rent, Mortgage, Insurance, salaries

·      Variable cost- a cost that rises or falls depending upon how much is produced.

·      Marginal cost- The cost of producing one more unit of a good.

Formulas:

TFC+ TVC= TC

AFC+ AVC= ATC

TFC/Q=AFC

TVC/Q= AVC

TC/Q= ATC

TFC= AFCxQ

TVC= AVCxQ

MC= NEW TC- OLD TC