macro%20test%201.pdf.pdf

Margarita Jones MACRO TEST 1 REVIEW TOPIC 1 Macro = economy, entire world, micro = specific group Scarcity = limited nature of society’s resources Economics = study of how society faces scarcity Trade-off = making a choice ○ Efficiency = getting th...

Margarita Jones MACRO TEST 1 REVIEW TOPIC 1 Macro = economy, entire world, micro = specific group Scarcity = limited nature of society’s resources Economics = study of how society faces scarcity Trade-off = making a choice ○ Efficiency = getting the most of your resources ○ Equity = distributing prosperity among other members of society ○ Fairness and efficiency are not mutually exclusive Increasing incomes of the poor will increase demand for goods, making the economy grow (greater equity may increase efficiency). On the other hand, improving efficiency may lead to more high-paying jobs, thus improving fairness. Opportunity cost = what you have to give up to get something Net OC = profit from best alternative - profit from chosen project When problem cannot be expressed in $, or when both profits from the chosen project and from the best alternative are negative = Gross OC Gross OC = quantity of what is given up / quantity of what is gained Or gross OC = price of what is gained / price of what is given up ○ If O.C. > 0, your chosen project is financially less beneficial than the best alternative project (at least in the short run). – Decision: take the best alternative project ○ If O.C. < 0, your chosen project is financially the most beneficial – Decision: take the chosen project ○ If O.C. = 0, your chosen project is financially as profitable as the best alternative – Decision: take either project Trade can make everyone better off ○ Efficiency → people don't need to do everything, they have specialities ○ Reason it is cheaper to make clothes in other countries = labour costs less because countries so populated with little capital (China) Rational people think at a margin ○ They only take an action if it makes them better off right now, regardless of the past Market economy ○ Usually efficient Command (planned economy) ○ Communism ○ Making decisions for customers, not think about the reaction of the customer  ○ Prices are determined by government → won’t be lowered if a product is not doing well ○ This causes things to either never sell and there are so many of them or for things to get sold out even if they are essential, ex waiting 10years for a car ○ No incentives ○ Everything is mispriced Market fails → gov can intervene ○ Gov provides goods like parks, streets, healthcare ○ If a company is polluting, gov creates permits that allow for solely a certain amount of pollution ○ When there is a recession building infrastructures Creates jobs Firms have someone to sell to Virtuous cycle Country’s standard of living = how much it produces per worker More money printed - money is less valuable so inflation ○ More $, people buy more, more workers needed, lower unemployment, higher prices Normative = preference, positive = fact CIRCULAR FLOW DIAGRAM When something gets messed up on chain, everything falls ○ Recession  PPF ○ Production possibility frontier ○ Making most of ressources ○ Negative slope ○ Gain one of smt, lose one of another ○ ○ PPF shifts for two reasons: 1. Changing quantity of resources, 2. Change in technology TOPIC 2 Market = a group of buyers for a particular product ○ Not forced Perfectly competitive market ○ Many buyers, many sellers, both know everything about product ○ Products are identical ○ Each buyer/seller is a price taker Meaning no one can affect the price of a product Monopoly ○ One seller, many buyers Monosomy ○ Gov seller Healthcare Demand ○ Quantity demanded = how much people are willing to get and spend money on a certain product ○ Higher prices → lower quantity demanded Law of demand ○ Demand schedule = table ○ Market quantity demanded = sum ○ Demand shifters  Number of buyers Income Price of related goods Substitutes (coke/pepsi) Compliments (eggs/bacon) Taste Expectations Normal goods = better quality, buy when your income is high Inferior goods = lower quality, buy when economy is low Supply ○ Quantity supplied = amount that sellers are willing and able to sell at a given price ○ Higher price = higher quantity supplied Law of supply Positive relationship ○ Supply curve shifters Input prices (cost of prod) Technology Number of sellers Shifts right Expectations Low demand, high supply = surplus High demand, low supply = shortage Always returns to equilibrium