macroeco notes.pdf

Terms Ceteris paribus- all else remains equal 1. Economics: the study of scarcity and choice 2. Choice: making an economic decision. 3. Opportunity cost: the value of the next best alternative (foregone) 4. Market: all people (consumer) that are interested in some type of item or service...

Terms Ceteris paribus- all else remains equal 1. Economics: the study of scarcity and choice 2. Choice: making an economic decision. 3. Opportunity cost: the value of the next best alternative (foregone) 4. Market: all people (consumer) that are interested in some type of item or service. 5. Market economy: (capitalist) both buyers and sellers have freedom of choice of what to sell and buy. In this economy there is likely to be inequality. S.I= motivation 6. Command economy: (communism) where the government has full control over fop. 7. Scarcity: resources are not sufficient or plentiful enough for society to use them as they wish. They need to use choice to allocate. 8. Economic aggregate: a numerical variable that measures the total economic activity in an economy. Eg GDP, FDI 9. Factors of production: land, labor, capital, entrepreneurship. 10. Positive economic/statements: based in fact (can be proven) 11. Normative economics/statements: based on opinions and estimations. 12. The margin: marginal analysis) the point where a decision is made 13. Mixed economy: a combination of market and command, where people have property rights but are still regulated by a central authority. In a command economy the government owns everything Profit is a reward for entrepreneurship profit= incentive Labor = reward is salary/wage Capital = reward is interest Land = reward is rent (factor payments) Demand - Consumers willingness and ability to consume goods and services. Market: all people (consumers) who are interested in a product or service. Willingness: some type of want Ability: money and serious commitment. Both of them= effective demand  1. Price 2. Item (quantity) Price is on the y axis The quantity of the item is on the x axis Always include a header Adam smith- the wealth of nations He said there is an inverse (negative) relationship between Q and P (quantity and price) - When price rises, quantity goes down - When price lowers, quantity goes up. This is not always true but is mostly true (Law of Demand) Reasons why the demand curve slopes down. 1. The substitution effect 2. The income effect 3. Diminishing returns Fundamental assumption Ceteris paribus except price IMPORTANT 1. When price changes, the change occurs along the existing demand curve. 2. When a non-price factor changes, the change affects the demand curve itself. Non price factors: factors that affect the overall economy but are not directly related to price changes. (EXPLAIN) a) The preferences= Preferences refer to the individual or collective choices that consumers make regarding the goods and services they consume. These preferences influence the demand for various products and services, ultimately impacting the overall economy. b) substitutes/complements - goods or services that can be used in place of each other. When the price of one substitute increases, the demand for the other increases.  - Complements are goods or services that are often consumed together. When the price of one complement increases, the demand for the other decreases. Price of sweaters rise= demand for jackets lowers Price of sweaters lowers= demand for jackets lowers c) Change In Income (type of good) - Luxury goods - Normal goods - Necessity goods - Inferior goods= good that u buy that u know is cheap d) Expectations - How people anticipate future economic conditions can significantly impact current economic behavior. - Confidence and worry e) Government policy f) External factors Market demand curves and Individual demand curves Friday 30th quiz Do ap classroom assignments Substitute hack If Ps (up)= D (up) they go in the same direction If Ps (down)= D (down) Complementary goods Price of milk c(up), the demand for cereal (down) they go opposite Price of milk c(down), demand for cereal (up) 8/30/2024 notes: supply Law of supply: - There is a positive relationship between price and quantity. - The entrepreneurs risk their FOP to start their business. Economies of scale: cost advantages from superior FOP. Happens when the cost of production decreases as the quantity of output increases. 1. Profit motive: the more possibility of profit, the more willingness to supply. 2. input/output effect: helps us understand how changes in prices can affect the production and consumption of goods and services in an economy. 3. Cost effect 9/4/2024 Non price factors 1. Price of FOP= input costs 2. Expectations 3. Government policy 4. Size of the industry 5. Technology 6. External factors/ supply- side shocks 7. Related goods and services Pareto efficiency 9/16/2024 Equilibrium - You cannot show allocative efficiency in ppc but the equilibrium graph can. - Allocative efficiency - Surplus and shortage - Shifts in demand and supply 1. Income method 2. Production method 3. Expenditure method firms= product market= households= factor market Adding financial markets and the rest of the world to the circular flow. 9/18/2024 Savings and loans in financial markets Saving money reduces money in circular flow Foreign sector 9/23/2024 - Gross domestic product= total market value of all final goods and services produced within a country in one year. - Market value= value someone is willing to pay on an open market. - If you overstate gdp, you are being unrealistic. - GNI= gross national income - Final goods (can be get on shelf) vs intermediate goods (the rest) - Where and when production occurs. GDP tracks the health of a country’s economy - Economists can use GDP to determine whether an economy is growing or experiencing a recession. Transfer payment (not counted/included in GDP) is when a government takes tax money and gives grants, gives money to old people, or scholarships for ppl in university. Not included in GDP - used/second hand products - Purely financial transactions (transfer payment) (stock and bonds) - Services provided for no $-childcare provided by stay-at-home parent - inputs/intermediate goods and services - Foreign produced products 3 ways to measure the GDP - The income method - The output method - Expenditure approach (GDP= C + I + G + Xn) C = consumption spending I = investment spending G = government spending Xn= net exports (Exports - import) 1. Values of production of final goods and services 2. Factor income earned by households from firms in the economy 3. Value of spending on domestically produced final goods and services. 3000 + 1000+ 700+ 300 - 500 (calculation of the gdp in ap classroom video)