Introduction to Micro and Macroeconomics

Micro and Macroeconomics

• Microeconomics focuses on individual economic decisions.
• Macroeconomics focuses on the economy as a whole.
• Economics studies how people use limited resources to satisfy wants.

Shortages and Scarcity

• Shortages are temporary.
• Scarcity is long-term.

Economic Systems

• Command: Decisions by a powerful authority.
• Market: Decisions by individuals.
• Traditional: Decisions based on customs.

Types of Economies

• The U.S. has a pure free enterprise economy.

Resources and Wants

• Resources are limited.
• Wants are unlimited.

Utility

• Utility is the satisfaction gained from consuming a good or service.

Resources

• Perpetual: Always available (e.g., sunlight).
• Renewable: Can be replenished (e.g., trees).
• Non-renewable: Cannot be replenished (e.g., oil).

Capitalism and the Standard of Living

• Capitalism contributes to a higher standard of living through new technology and competition.

Government Intervention

• Government intervention is needed in binding contracts to ensure all parties uphold their obligations.

Trade and Economic Growth

• Trade increases economic choices.

Variables and Human Capital

• Variables in graphs change.
• Human capital consists of knowledge and skills gained through education and experience.

Resource Allocation

• Societies prioritize needs over wants to determine how resources are used.

U.S. Economy Characteristics

• Economic freedom.
• Competition.
• Equal opportunity.
• Binding contracts.
• Property rights.
• Profit motive.
• Limited government.

Opportunity Cost

• Opportunity cost is the value of the next best alternative.

Diminishing Marginal Utility

• The more a good is consumed, the less satisfaction a person derives from each additional unit.

Demand

• Demand is the quantity of a good that consumers are willing and able to buy at various prices at a given point in time.

Supply

• As prices increase, supply increases; as prices decrease, supply decreases.

Supply and Demand Shifters

• Many factors cause changes in supply and demand, including income, consumer preferences, and prices of substitute goods.

Elasticity

• Elasticity measures the responsiveness of quantity demanded or supplied to price changes.

Economic Interdependence

• People depend on others for most goods and services due to specialization and trade.

Economic Interdependence

• Economic interdependence describes how people depend on others for the goods and services they require.

Demand Schedule

• A demand schedule displays the quantity of a good or service that different consumers are willing and able to buy at various prices.

Market Equilibrium

• Market equilibrium occurs where quantity demanded equals quantity supplied, thus determining price.

Money Characteristics

• Money is acceptable, scarce, portable, durable, divisible, and uniform.

Investment Options

• Diversification is a strategy to reduce risk in investing. Risk and reward are associated with different investment options.

Perfect Competition

• Many producers and consumers; identical products; easy entry; no control over prices.

Monopoly

• One producer; unique product; high barriers to entry; substantial control over prices.

Oligopoly

• Few producers; similar products; high barriers to entry; some control over prices.

Bank Loans and Uses

• Different types of bank loans exist for various purposes (personal, business, mortgage).

Externalities: Positive and Negative

• Positive externalities: benefits others.
• Negative externalities: costs imposed on others.

Competition

• Non-price competition: Using factors other than price to attract customers (e.g., service, physical characteristics, location, status).

Price Leadership

• A dominant firm sets prices, and other firms follow.

Collusion

• Producers agree on production levels and pricing.

Bank Charter

• A bank charter is an agreement with a state for a bank's operation.

Diversification in Investing

• Reduces risk.

Role of Prices

• Guide consumers and producers on what to buy and sell.

Price Determination

• Market equilibrium (supply and demand) determines prices.

Government Involvement

• Government intervenes to correct externalities, regulate industries, and promote economic stability.

Taxes

• Taxes are a significant source of government revenue (e.g., income tax).

Constitutional Provisions on Economics

• The Constitution gives Congress specific powers related to economics.

Factors Influencing Economic Decisions

• Consumer freedom to choose goods and services.

Trade

• Countries trade to gain a variety of goods and services at potentially lower prices.

Tariffs

• Tariffs are taxes on imported goods for protection.

Unemployment

• Cyclical unemployment is linked to economic downturns.

Economic Growth

• Factors include investment, innovation and technology.

Trade and Employment

• Global trade can impact domestic employment.

Trade Agreements and Trade Barriers

• Agreements reduce barriers; trade barriers can limit choices and increase prices.

Inflation Measurement

• Inflation measurement has limitations.

Natural Rate of Unemployment

• Natural rate of unemployment is a range between 4%-6%.

Trading Partners

• The U.S. has significant trade relationships with other countries.

Trade Deficit

• Trade deficit means importing more than exporting.

Depreciation

• Gradual reduction of an asset's value due to wear, tear, or obsolescence.

Business Cycle

• Consists of phases: expansion, peak, contraction, and trough.

Education and Exports

• Countries benefit from exporting education opportunities.