Macroeconomics Chapter 1,2,3,8

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the study of the management and allocation of limited resources
Economics model
a simplified version of reality used to analyze real-world economics situations
a situation in which unlimited wants exceed the limited resources available to fulfil those wants
the study of how households and firms make choices
group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
3 assumptions economists make
1. People are rational 2. People respond to economic incentives 3. optimal decisions are made at the margin
Marginal analysis
involves comparing marginal benefit to marginal cost
Positive analysis
concerned with what is
normative analysis
concerned with what ought to be
Goal of consumers
maximized utility
goal of producers
maximize their profit
goals of governments
maximize social welfare
The economic problem every country must solve
1.What will be produced
2 How will it be produced
3.Who will receive it
Trade off
the idea that because of scarcity, producing more of one g/s means producing less of another
fair distribution of economic benefits
Steps of developing a model
1. decide on assumptions
2. Formulate a testable hypothesis
3. Use economic data to test the hypothesis
4. revise the model
5. retain the revised model
Productive efficiency
a situation in which a good/service is produced at the lowest possible cost
allocative efficiency
a state of the economy in which production is accordance with consumer preferences
voluntary exchange
a situation that occurs in markets when both parties are benefited by the transaction
The process a firm uses to turn inputs into outputs.
practical application of an invention
machines used to produce good or services
Normal good
demand increases as income rises
inferior good
demand increases as income falls
quantity supplied
the amount of a good and service a firm is willing to sell
quantity demanded
the amount of a good and service people are willing to buy
law of supply
increase in price causes increase in quantity supplied
law of demand
as price falls demand increases
Categories: Macroeconomics