Microeconomics and International Trade

Study Notes

Study of individual economic units such as:
- Consumers
- Firms
- Markets
Examines how these units make decisions about:
- Allocation of resources
- Pricing of goods and services
Key concepts:
- Opportunity cost
- Supply and demand
- Market equilibrium
- Elasticity
- Consumer behavior
- Production and cost analysis

Study of exchange of goods and services between countries
Examines the benefits and costs of trade, including:
- Gains from trade
- Comparative advantage
- Absolute advantage
- Tariffs and trade barriers
- Exchange rates
Key concepts:
- Trade balance
- Balance of payments
- Terms of trade
- Trade policies (protectionism, free trade)

Use of government spending and taxation to influence economic activity
Examines the role of government in:
- Stabilizing the economy
- Promoting economic growth
- Reducing unemployment
Key concepts:
- Government budget
- Fiscal deficit
- Fiscal multiplier
- Taxation and its effects on the economy
- Automatic stabilizers

Study of the economy as a whole
Examines aggregate variables such as:
- Gross Domestic Product (GDP)
- Inflation
- Unemployment
- Economic growth
Key concepts:
- Business cycles
- Aggregate demand and supply
- Fiscal and monetary policies
- Economic indicators (e.g. GDP, inflation rate)

Use of money supply and interest rates to influence economic activity
Examines the role of central banks in:
- Regulating the money supply
- Controlling inflation
- Promoting economic growth
Key concepts:
- Money supply and demand
- Interest rates and their effects
- Monetary policy tools (e.g. open market operations, reserve requirements)
- Central bank independence and accountability

Microeconomics examines the behavior and decision-making processes of individual economic units, including consumers, firms, and markets.
It analyzes how these units allocate resources and determine prices of goods and services.
Opportunity cost is a key concept in microeconomics, referring to the value of the next best alternative that is given up when a choice is made.
Supply and demand are key factors in determining market equilibrium, where the quantity supplied equals the quantity demanded.
Elasticity measures how responsive the quantity demanded or supplied of a good is to changes in its price or other influential factors.
Consumer behavior is also a crucial aspect of microeconomics, including the study of indifference curves and budget lines.

International trade involves the exchange of goods and services between countries, driven by comparative advantage and absolute advantage.
Gains from trade arise from specialization and exchange, leading to increased efficiency and output.
Tariffs and trade barriers can hinder trade, while exchange rates influence the prices of imports and exports.
The trade balance and balance of payments are key indicators of a country's international trade performance.
Trade policies, including protectionism and free trade, can significantly impact a country's economic performance.

Fiscal policy uses government spending and taxation to influence economic activity, aiming to stabilize the economy and promote growth.
The government budget is a key tool in fiscal policy, with a fiscal deficit or surplus impacting the overall economy.
The fiscal multiplier measures the effect of government spending on the overall economy.
Taxation can influence economic behavior, with taxes impacting incentives and resource allocation.
Automatic stabilizers, such as unemployment benefits, help to smooth out economic fluctuations.

Macroeconomics studies the economy as a whole, focusing on aggregate variables such as Gross Domestic Product (GDP), inflation, unemployment, and economic growth.
Business cycles, characterized by periods of expansion and contraction, are a key aspect of macroeconomic analysis.
Aggregate demand and supply determine the overall level of economic activity, with fiscal and monetary policies influencing these aggregates.
Economic indicators, such as GDP, inflation rate, and unemployment rate, are used to monitor the macroeconomic performance of an economy.

Monetary policy uses the money supply and interest rates to influence economic activity, primarily through the actions of central banks.
The money supply and demand are key factors in determining interest rates, which in turn impact borrowing and spending decisions.
Central banks use monetary policy tools, such as open market operations and reserve requirements, to regulate the money supply and control inflation.
Central bank independence and accountability are crucial aspects of monetary policy, ensuring that decisions are made in the best interests of the economy.