Macroeconomics: Chapters 1,2,3

study of how people allocate their limits

Macroeconomics (large)
Microeconomics (small)

Study of behavior of the economy as a whole
-Inflation
-Taxes
-Unemployment

study of decision making undertaken by individuals and firms

What/How much will be produced?
How will items be produced?
For whom will items be produced?

Centralized command and control
Price System
Mixed Economic System

king, queen, or dictator- centralized government

individuals in society answer questions

decision about how resources should be used is partly by private sector and partly by government sector

Rationality, Ceteris Paribus, Self interest

individuals do not intentionally make decisions that would leave themselves worse off

“other things constant” “other things equal”

seek many goals, not just increased wealth measured in money terms

statement of fact

deals with opinion “value judgement”

we do not ever have enough of everything including time to satisfy our every desire

inputs used in the production of the things we want
aka factors of production

land- natural resource (timber,water,fish,minerals)
Labor- human resource (contributions made by people who work)
physical- improvement to natural resources (irrigation ditches, machinery)
Entrepreneurship- preforms organizing, managing, and assembling (creative resource)

value of next best alternative that must be sacrificed to obtain something or satisfy a want

line defines the max quantity of 1 good or service that can be produced, given a specific quantity of another is produced; any point is efficient on curve

what each region consumes is not identical to what that region produces

segregation of resources into different specific tasks

when price goes up people buy less
when price goes down people buy more
quantity demand is inversely related to price (move in opposite direction

income, tastes and preferences, price of related good, expectations, market size

shift to the right= increase
shift to the left= decrease
increase in income equals decrease in demand
normal good-demand rises when customer income rises (shoes, smartphone)
inferior good- demand falls as income rises (house hold gets richer; buys more expensive things)

change in consumer taste changes the demand of a certain product

change in price of 1 commodity affect demand for related commodity
substitute- price of one goes up substitute for the other (steak and chicken)
complements- goods consumed together; change in price of product will cause a change in demand in opposite direction for the other good (phones and phone cases)

expectations of a product will prompt to buy more (product availability, future prices, income)

increase= curve outward
decrease= curve inward
weather=seasons

higher prices, larger quantities will generally be supplied that at lower prices. Smaller quantity will generally be supplied than at higher prices
price of product or service and quantity supplied are related directly

technology and productivity, cost of inputs used to produce the product, price expectations, taxes and subsidies, number of firms in the industry

available production techniques change, supply curve will shift

input prices fall, production costs fall (decrease curve right; increase curve right)

affects a consumers willingness to supply

taxes reduce supply
subsidy-negative tax (government grant money for producing)

when firms change number of employees; hold constant (supply curve: right)

Market clearing price
quantity supplied equals quantity demanded at a particular price
occurs where supply and demand curves intersect

quantity demanded is greater than quantity supplied at price below market clearing price

quantity supplied is greater than quantity demanded
price falls for buyers