Macro Notes PDF

Macro Notes Ch. 1 - Resources -- land, labor, capital, entrepreneurship - Scarcity's effects -- choice, rationing device, competition - Opportunity cost -- the most highly valued opportunity forfeited when a choice is made - Zero price doesn't mean zero cost - A change in...

Macro Notes Ch. 1 - Resources -- land, labor, capital, entrepreneurship - Scarcity's effects -- choice, rationing device, competition - Opportunity cost -- the most highly valued opportunity forfeited when a choice is made - Zero price doesn't mean zero cost - A change in opportunity cost can change a person's behavior - Benefits rarely come without costs - Marginal Benefits (MB) vs Marginal Cost (MC) - Efficiency exists when Marginal Benefits (MB) = Marginal Costs (MC) - Incentives vs unintended costs - Positive vs. Normative Economics - Positive economics the study of what is in economics - Normative economics the study of what should be in economics Ch. 2 - PPF (production possibilities frontier) possible combinations of two goods that can be produced during a certain span of time under certain conditions and fully employed resources - Straight-line PPF = constant opportunity costs (straight line) - Bowed-outward PPF = increasing opportunity costs - Law of increasing opportunity costs as more of a good is produced, the opportunity costs of producing that good increases - Productive efficient max output produced with given resources and tech - Productive inefficient less than max output is produced with the given resources and tech (implies that more than one of a good can be produced w/o any less of another being produced) - Tech an advance in tech commonly increases the ability to produce more output with a fixed amount of resources or the ability to produce the same output for fewer resources - Absolute advantage someone can produce more of a good using the same amount of resources - Comparative advantage someone can produce a good at a lower opportunity cost than someone else Ch. 3 - Market any place people come to trade - **Demand** [willingness and ability] of buyers to purchase different quantities of a good at different prices during a specific period - **Law of demand** as the price of good rises, the quantity demanded of the good falls (vice versa, ceteris paribus) - Law of diminishing marginal utility over a period of time, the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases - **Change in demand = shift in demand curve** - Caused by change in income, preferences, prices of related goods, number of buyers, expectations of future prices - **Change in quantity demanded = movement along demand curve** - Caused by change in price - Normal good demand rises as income rises (vice versa) - Inferior good demand falls as income rises (vice versa) - Neutral good demand does not change as income rises or falls - Substitutes 2 goods that satisfy similar needs or desires (a higher price for one leads to a rightward shift in demand curve of substitute) - Complements 2 goods that are used jointly in consumption (a higher price for one leads to a leftward shift in demand curve of complement) - **Supply** willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific period ([upward sloping curve)] - **Law of supply** as the price of a good rises, the quantity supplied of the good rises (vice versa) - **Change in Supply = shift in supply curve** - Caused by prices of relevant resources, tech, prices of other goods, \# of sellers, expectations of future price, taxes and subsidies, government restrictions - **Change in quantity supplied = movement along supply curve** - Caused by change in price - Surplus = excess supply - Shortage = excess demand - Equilibrium at rest (where supply and demand intersect) - Consumer surplus (CS) = Max buying price -- price paid - Producers surplus (PS) = Price received -- minimum buying price - Total surplus = CS + PS Ch. 4 - Price rationing device and transmitter of information - Because of scarcity, a rationing device is needed to determine who gets what of the available limited resources - Relays information about what's happening in the market based on scarcity - Price Controls (ceilings and floors) - Price ceilings government mandated max price above which legal trades cannot be made (rent control) - Causes shortages, few exchanges, nonprice rationing devices - Price floor government mandated min price below which legal trades cannot be made (minimum wage) - Causes surpluses, few exchanges, nonprice rationing devices - Deadweight loss the loss to society of not producing the competitive level of output (equilibrium) - Absolute price -- the price of a good in money terms - Relative price -- the price of a good in terms of another good Ch. 6 - Price vs price level - Price single price - Price level weighted average of the prices of all goods and services - Price index -- measure of price level - Consumer Price Index (CPI) the weighted average of prices of a specific set of goods and services purchased by a typical household (widely cited index number for the price level) - Base year benchmark year chosen as a point of reference for comparison - Market Basket (goods/services bought by a typical household) - Food/beverage - Housing - Apparel - Transportation - Medical care - Recreation - Education and communication - Other - A black text on a white background AI-generated content may be incorrect. - Nominal income -- dollar amount of income - Real income -- nominal income adjusted for price changes - **Real income = (nominal income/CPI)100** - **Unemployment rat**e -- percentage of civilian labor force that is unemployed - = number of unemployed / civilian labor force - **Employment rate** -- percentage of the civilian noninstitutional population - = number of employed / civilian noninstitutional population - Labor Force Participation Rate (LFPR) -- percentage of civilian population that is in the **civilian labor force** - = civilian labor force / civilian noninstitutional population - **Frictional unemployment** unemployment due to national frictions in the economy caused by changing market conditions (represented by qualified individuals with transferable skills who change jobs) \*have transferrable skills - **Structural unemployment** unemployment due to structural changes in the economy that eliminate jobs an create others for which the unemployed are unqualified \*does not have transferrable skills - **Natural unemployment** unemployment caused by frictional and structural factors in the economy - **Natural unemployment rate = frictional unemployment rate + structural unemployment rate** - **Full employment** when unemployment rate is equal to natural unemployment rate - **Cyclical unemployment rate** difference between unemployment rate and natural unemployment rate -