Macro Economics Notes - Chapters 1 & 2

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Questions and Answers

Which of the following is NOT a factor of production?

  • Capital
  • Technology (correct)
  • Land
  • Labor

Opportunity cost refers to the monetary value of a forgone opportunity.

False (B)

Explain how scarcity leads to competition.

Scarcity means resources are limited relative to wants. This leads to competition because individuals and businesses must strive to acquire the scarce resources to satisfy their needs and desires. They compete by offering better prices, higher quality, or more efficient methods.

The idea of _______ means that we must make choices about the most valuable opportunity we are willing to give up when making a decision.

<p>opportunity cost</p> Signup and view all the answers

Match the following economic concepts with their definitions:

<p>Resources = Inputs used in the production process, including land, labor, capital, and entrepreneurship Scarcity = The fundamental economic problem that arises when wants exceed available resources Opportunity Cost = The value of the next best alternative forgone when making a choice Marginal Analysis = The process of comparing the additional benefits and costs of a decision Efficiency = A state where resources are allocated to produce the maximum possible output and minimize waste</p> Signup and view all the answers

Which of the following best describes frictional unemployment?

<p>Unemployment caused by normal labor turnover and the time it takes for workers to find new jobs. (C)</p> Signup and view all the answers

The unemployment rate represents the percentage of the total population that is unemployed.

<p>False (B)</p> Signup and view all the answers

What is the formula for calculating real income?

<p>Real income = (Nominal income / CPI) * 100</p> Signup and view all the answers

The difference between the unemployment rate and the natural unemployment rate is known as the ______ unemployment rate.

<p>cyclical</p> Signup and view all the answers

Match the following unemployment types with their descriptions:

<p>Frictional Unemployment = Unemployment caused by normal labor turnover and the time it takes for workers to find new jobs. Structural Unemployment = Unemployment caused by a mismatch between the skills of workers and the requirements of available jobs. Cyclical Unemployment = Unemployment caused by a decline in overall economic activity.</p> Signup and view all the answers

Which of the following is NOT a factor that causes a shift in the demand curve?

<p>Change in the price of the good itself (C)</p> Signup and view all the answers

A bowed-outward PPF indicates constant opportunity costs.

<p>False (B)</p> Signup and view all the answers

What is the difference between a normal good and an inferior good?

<p>A normal good is a good whose demand increases as income rises, while an inferior good is a good whose demand decreases as income rises.</p> Signup and view all the answers

The ______ is a measure of price level that tracks the weighted average of prices of a specific set of goods and services purchased by a typical household.

<p>Consumer Price Index (CPI)</p> Signup and view all the answers

Which of the following is an example of a price ceiling?

<p>Rent control (D)</p> Signup and view all the answers

The law of increasing opportunity costs states that as more of a good is produced, the opportunity cost of producing that good decreases.

<p>False (B)</p> Signup and view all the answers

What is the difference between a change in demand and a change in quantity demanded?

<p>A change in demand is a shift in the entire demand curve, caused by factors other than price. A change in quantity demanded is a movement along the demand curve, caused by a change in the price of the good.</p> Signup and view all the answers

When the price of a good rises, the quantity ______ of the good falls, according to the law of demand.

<p>demanded</p> Signup and view all the answers

Match the following economic scenarios with the appropriate label:

<p>A shop sells out of a popular product. = Shortage The government sets a minimum price for milk. = Price Floor A farmer produces more crops than the market can absorb. = Surplus Consumers are willing to pay more than the current market price of a good. = Consumer Surplus Producers are able to sell their goods at a higher price than their minimum selling price. = Producer Surplus</p> Signup and view all the answers

Flashcards

Resources

Inputs used to produce goods and services: land, labor, capital, entrepreneurship.

Scarcity

Limited resources lead to the necessity of making choices.

Opportunity Cost

The value of the next best alternative forgone when making a decision.

Marginal Benefits vs Marginal Costs

Marginal Benefits (MB) are the additional gains from an action, while Marginal Costs (MC) are the additional costs incurred.

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Efficiency

A situation where Marginal Benefits equal Marginal Costs, maximizing resource use.

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Nominal Income

Dollar amount of income received without adjustments.

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Real Income

Nominal income adjusted for inflation or price changes.

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Unemployment Rate

Percentage of the civilian labor force that is not employed.

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Frictional Unemployment

Unemployment due to transitions in the labor market.

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Natural Unemployment

Unemployment arising from frictional and structural factors.

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Normative Economics

The study of what should be in economics.

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Positive Economics

The study of what is in economics, based on factual statements.

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Production Possibilities Frontier (PPF)

Shows possible combinations of two goods produced with full resources.

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Straight-line PPF

Indicates constant opportunity costs in production.

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Bowed-outward PPF

Indicates increasing opportunity costs as production expands.

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Law of Increasing Opportunity Costs

As more of a good is produced, its opportunity cost increases.

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Productive Efficiency

Maximum output is produced with given resources and technology.

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Productive Inefficiency

Less than maximum output is produced with available resources.

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Absolute Advantage

The ability to produce more of a good using the same resources.

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Comparative Advantage

Ability to produce a good at a lower opportunity cost than others.

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Law of Demand

As price rises, quantity demanded falls, ceteris paribus.

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Change in Demand

A shift in the demand curve due to various factors other than price.

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Normal Good

Demand increases as income rises.

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Inferior Good

Demand falls as income increases.

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Consumer Surplus

The difference between the maximum price consumers are willing to pay and the price they actually pay.

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Study Notes

Macro Notes - Chapter 1

  • Resources include land, labor, capital, and entrepreneurship
  • Scarcity leads to choices and rationing
  • Opportunity cost is the value of the best alternative forgone when a choice is made
  • Zero price doesn't equal zero cost
  • Changes in opportunity cost influence behavior
  • Benefits often come with costs
  • Efficiency is achieved when marginal benefits equal marginal costs (MB = MC)
  • Incentives exist and can have unintended consequences
  • Positive economics studies what is in economics, while normative economics studies what should be.

Macro Notes - Chapter 2

  • Production Possibilities Frontier (PPF) shows possible combinations of goods/services given resources and technology
  • Straight-line PPF indicates constant opportunity costs
  • Bowed-outward PPF indicates increasing opportunity costs
  • The law of increasing opportunity costs states that as more of one good is produced, the opportunity cost of producing that good increases
  • Productive efficiency means maximum output given resources and technology
  • Technological advancements increase productivity (more output with less input or same output with less input)
  • Absolute advantage exists when someone produces more of a good with the same resources
  • Comparative advantage exists when someone produces a good at a lower opportunity cost than another.

Macro Notes - Chapter 3

  • A market is a place where buyers and sellers interact
  • Demand reflects buyers' willingness and ability to purchase goods at various prices
  • The law of demand states that as price increases, quantity demanded decreases (ceteris paribus)
  • Supply reflects sellers' willingness and ability to offer goods at various prices
  • The law of supply states that as price increases, quantity supplied increases (ceteris paribus)
  • Surplus occurs when quantity supplied exceeds quantity demanded
  • Shortage occurs when quantity demanded exceeds quantity supplied
  • Equilibrium is where supply and demand intersect, clearing the market
  • Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price paid
  • Producer surplus is the difference between the minimum price a producer is willing to accept and the actual price received
  • Total surplus is the sum of consumer and producer surplus

Macro Notes - Chapter 6

  • Absolute price is the price of a good in monetary terms
  • Relative price is the price of a good in terms of another good
  • Price level is a weighted average of prices for all goods and services.
  • Consumer Price Index (CPI) measures changes in the average price of a basket of goods.
  • Nominal income is the dollar amount of income
  • Real income is nominal income adjusted for inflation (using CPI)
  • Unemployment rate measures the percentage of the labor force that is unemployed
  • Employment rate measures the percentage of the labor force that is employed
  • Labor force participation rate measures the percentage of the working-age population that is in the civilian labor force
  • Frictional unemployment is caused by normal transitions in the job market.
  • Structural unemployment is due to gaps between available jobs and worker skills.

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