Unit 1

 

1. Macroeconomics - It is the study of the major components of economy.  Ex: Inflation, supply & demand, wages and GDP. 

Microeconomics - It is the study of how households and firms make decisions and how they interact with the market.  

2.      Positive economics - Claims the attempt to describe the world as is, very descriptive.  Ex: Minimum wage laws cause unemployment. 

Normative Economics – Claims that attempt to predict how the world should be, opinion-based.  Ex: The government should raise minimum wage. 

3.      Needs – Basic requirements for survival

Wants – Desires of citizens

4.      Scarcity – Limited; not enough; fundamental economic problem that all societies face we’ve satisfied unlimited wants with limited resources.  Ex:  Oil and water.

Shortage – It is a situation where quantity demanded is greater than quantity supplied.  QD > QS. 

5.      Goods – A tangible commodity.  Goods are bought, sold and traded; also produced. 

·         Consumer goods – Goods that are intended for final use by the consumer.

·         Capital goods – Items used in the creation of other goods such as factory machinery and trucks.

Services – Work that is performed for someone else.

6.      Factors of Production

1.      Land – natural resources

2.      Labor – work force

3.      Capital –

·         Human – The knowledge and skills a worker gains through education and experience

·         Physical – Human made objects used to create other goods and services.  Ex: Buildings and tools.

4.      Entrepreneurship – Being inventive, risk-taker and having a product. 

Trade-offs - Alternatives that we give up when we choose one course of action over another. 
Opportunity cost - We're choosing our next best alternative.  Ex: wanted Sprite, but didn't have it, so you ask for Dr. Pepper; didn't have it, asked for Coke.
Production Possibility Curve - Shows the most that society can produce if it uses every available resources to the best of its ability.

Key Assumptions of PPG:

1. Two goods are produced 
2. Full employment 
3. Fixed resources (land, labor and capital) 
4. Fixed state of Technology 
5. No international trade 

Price Ceiling - A government imposed limit on how high a price is charged.  Ex: Rent control (move into an apartment in 1982 for $400/month; the price will never go up)

Expansionary - Real output in the economy is increasing and the unemployment rate is declining.
Peak - Where real GDP is at its highest point.
Contractionary - Real output in the economy is decreasing and the unemployment rate is rising.  (recession)
Trough - The lowest point of real GDP. 

• One business cycle is from trough to trough.