Macroeconomics Chapters 1-5

what, how, and for whom

the grand sum of all production and consumption activities

the limitation of a nation’s resources

land, labor, capital, and entrepreneurship

the study of how people use scarce resources

what is given up to get something else

We must give up ever-increasing quantities of other goods and services in order to get more of a particular good.

squeezing maximum output out of available resources

unattainable

laissez faire (resist work place regulation, price controls, and minimum wage)

government intervention (argue that resistance of work place regulation, price controls, and minimum wage temper the excesses of the market)

allocating the resources of an entire economy to achieve aggregate economic goals

behavior and goals of individual market participants

the scarcity of resources

what you give up divided by what you get

Adam Smith

Karl Marx

John Maynard Keynes

the total market value of all the goods and services a nation produces in a year

how much output the average person would get if all output were divided evenly among the population

the skills and knowledge of workers

production processes that use a high ratio of capital to labor inputs (i.e. machines and technology)

output per unit of input

reallocating resources from one industry to another (i.e. agriculture -> technology)

what advantage you have with your factors of production; huge aspect of trade

alternative combinations of final goods and services that could be produced in a given period with all available resources and technology

doing something in another country; increases output

costs or benefits of a market activity borne by a third party; affects the collective well-being of a community

1. Legal Framework (i.e. property rights, laws)
2. Environment (i.e. externalities, pos & neg)
3. Protection of Consumers (antitrust, monopoly)
4. Protection of Labor (min wage, child labor laws)

a firm that produces the entire market supply of a particular good or service

paying too much for too little (antitrust laws)

one fifth of the population rank ordered by income

the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus

1. Technology
increase, increase
decrease, decrease
2. Factor Costs
increase, decrease
decrease, increase
3. Taxes/Subsidies
taxes increase, supply decrease
(at some point, taxes make products unprofitable)
4. Expectations of Prices
increase, increase supply
decrease, decrease supply
5. Number of Sellers
increase, increase supply
decrease, decrease supply
6. Price of Other Goods
increase price, decrease
decrease price, increase

summary of the supply intentions of all procedures (combined sales of all market participants)

Changes in quantity supplied are movements along a given supply curve. Changes in supply are shifts of the supply curve.

the price at which a quantity of a good demanded in a given time period equals the quantity supplied

the use of market prices and sales to signal desired outputs

the amount by which the quantity supplied exceeds the quantity demanded

an excess of quantity demanded than is supplied

whenever the market prices is set above or below the equilibrium price, either a market surplus or shortage will emerge

new demand curve intersects the unchanged market supply curve at a new price

supply decreases, price increases

an upper limit imposed on the price of a good

wherever transactions of goods or services occur

As a price of a good increases, demand increases.

As price increases, quantity supplied decreases.

1. Preferences
2. Income
For most goods: increase, increase
decrease, decrease
For inferior goods: increase, decrease
decrease, increase
3. Price of Related Goods
Substitutes: price increase, demand increase
price decrease, demand decrease
Compliments: increase price, demand decrease
decrease price, demand increase
4. Expected Future Price
increase, increase
decrease, decrease
5. Expected Future Income/Credit
increase, increase
decrease, decrease
6. Population
increase, increase
decrease, decrease

the most desirable combination of output attainable with existing resources, technology, and social values

an imperfection in the market mechanism that prevents optimal outcomes

Everyone can use and benefit from this good. They are non-excludable, sometimes creating a free rider problem and even market failure.

an individual who reaps direct benefits from someone else’s purchase (consumption) of a public good

an excludable good

costs or benefits of a market activity borne by a third party; the difference between the social and private costs (benefits) of a market activity; there are positive and negative aspects

being able to manipulate the prices of goods and services (i.e. monopolies, patents, antitrust laws)

cash transfers (taking from rich, giving to poor), in-kind transfers (not a good, but a service such as medicaid or medicare); government uses our taxes

measurement of aggregate economy activity

value of all final goods produced in your country (USA); excludes factories in our country owned by another country

Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (N)

GPD divided by total population

the increase in the market value of a product that takes place at each stage of the production process

Exports minus Imports

value of goods with the price NOW (C+I+G+N)

apt to change

Nominal GDP divided by price index

100 (base) + % Price Increase divided by 100 (base)