Unit 1 Macro Economics

January 5, 2016

            Macroeconomics- study of the economy as a whole big picture. (inflation, wage, laws, and international trade)

            Microeconomics- study of the individual or specific units of the economy. Supply and demand, market structures, business organization)

            Positive economics- attempt to describe the world as it is. Very descriptive in nature (collects and protects facts)

            Normative economics- attempt to prescribe how the world should be. (outta, should of) this is opinion based.

            Needs- basic requirement for survival (food, water, shelter, clothing)

            Wants- desire but not necessary

            Goods- tangible thing something you can touch

(capitol goods- items used in creation of other goods such as machinery and trucks

consumer goods- goods that are intended for final use by consumer)

            services- work that is perform fundamental problem that all societies face. Trying to satisfy unlimited wants with limited resources.

            Scarcity- most fundamental problem that all societies face. Trying to satisfy unlimited wants with limited resources.

            Shortage- quantity demanded is greater than supply

Factor of production

1.         Land-natural resource

2.         Labor- work force

3.         Capitol- human capitol, physical capitol

4.         Entrepreneurship- innovative, risk- taker

Resources require to produce goods and services

Human capitol- knowledge, skills, abilities, talents, acquired through education or experience

Physical capitol- tools, machines, factories, robots, trucks

January 6,2016

Trade-offs- alternative that we give up whenever we choose one course of action over another

Opportunity cost- next best alternative ex. Drink get the next best thing cos the place ran out.

Production possibilities curve- graph that shows alternative ways to use an economies resources.

4 assumptions of ppg

1.         Two goods

2.         Fixed resources (land, labor, capitol, entrepreneurship)

3.         Fixed technology

4.         Full employment of resources

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

Allocative efficiency- the products being produced are the ones that the society desires

Productive efficiency- products are being produced in the least costly way and this will represent any point on the ppc or production possibility curve

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

3 types of movements within ppg

1.         Inside the ppc- this occurs when resources are unemployed or underemployed

2.         Along the ppc- going from B to C or from C to B on the curve

3.         Shifts the ppc- so if there is an increase in the curve the shift would be D

January 7th

What causes the ppc/ppf to shift?

1.         Advances in technology

2.         Change in resources

3.         Change in labor force

4.         Economic growth

5.         Natural disasters/ war / famine

6.         More education on training (human capitol)

January 11, 2016

Demand

Law of demand- the quantities that people are willing and able to buy at various prices.

Law of demand- occurs when there is an inverse relationship between price and quantity demanded.

A change in price causes a change in quantity demanded.

What causes a “change” in demand?

1.         Change in buyers taste (advertisement)

2.         Change in number of buyers (population)

3.         Change in price of related goods

4.         Change in income

5.         Change in expectations-looking at the future.

Supply

Supply- the quantities that producers/sellers are willing  and able to produce at various prices.

The law of supply- there is a direct relationship between price and quantity supplied.

Change in price causes a “change in quantity supplied”

What causes a “change in supply”?

1.         Change in expectations

2.         Change in weather

3.         Change in number of suppliers

4.         Change in cost of production

5.         Change in taxes or subsides

6.         Change in technology

January 14, 2016

Elasticity of demand- measure of how consumes react to a change in price.

Elastic demand- it is demand that is very sensitive to a change in price. E>1.

·             Product is not a necessity.

·             Available substitutes.

Inelastic demand- demand that is not very sensitive to a change in price. E<1

·             Product is a necessity

·             Few or no substitutes

Unit/ unitary elastic- E=1

Elastic demand (Ex. Soda, steaks, candy, fur coats)

Inelastic demand (Ex. Gas, insulin/ medicine, milk, salt, toothpaste)

Price elasticity demand- 3-step formula

ELASTIC	INELASTIC
soda	gas
steaks	salt
candy	milk
candy	Insulin/ medicine
Fur coats	toothpaste

Step 1: quantity (new quality-old quantity)

Old quantity

                        Step 2: price of item (new price -old price)

Old price

                        Step 3: PED (% change in quantity demanded)

% change in price

                       

Cost of production

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

Fixed cost- a cost that does not change no matter how much is produced.

Ex.(rent, mortgage, salaries, insurance)

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

Ex (electricity)

Marginal costs- the costs 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=AFC*Q

TVC=AVC*Q

MC=TC-ATC