Principles of Macroeconomics Chapter 1, 2, 3

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Scarcity
In everyday life, we make choice due to this
Utility
We try to maximize this when we make choices. This gives up happiness or satisfaction
Land, Labor, Capital, Entrepreneurship
Name 2 resources used in production
Technology, add more workers, add more capital, add more entrepreneurship
One way to increase a production possibilities curve
A production point that is on the line
Where is the optimal point of production on a production possibility curve
Product Market
The market allows for exchange of good and services for money
Resource Market
This market is where producers go to acquire labor, land, capital and entrepreneurship
Household
Who owns all of the resources?
Households sell resources and businesses buy resources
Who sells resources and who buys resources in the circular flow
A simplified version of an economy
What does the circular flow model represent
Private Property
The characteristic allows you to own land and use it as you see fit
Markets and Prices
The characteristic is the coordinating system in a capitalist economy (meaning it matches buyers and sellers).
Geographic specialization
Florida produces oranges and Nebraska produces corn. This is an example of market characteristic?
Self-interest/ ” The Invisible Hand”
This is the idea that as a business seeks to gain a profit, they will provide consumers with the things they want or need.
Prices and Profits
What is the answer to the five fundamental question?

– What goods and services will be produced?
– How will the goods and services be produced?
– Who will get the good and services?
-How will the system accommodate change?
-How will the system promote progress?

As prices rise supply rises and as price falls, supply falls
What is the law of supply?
Direct/ positive relationship
What is the relationship between price and quantity for supply?
Change in resource prices
Your factory makes glass screen protectors for cell phones. The prices of class has gone up. Which determinant of suppl is this an example of?
Change in quantity supplied
The price on the market for the pencils you produce has decreased. Demand has increased.
– Is this a change in supply or change in quantity supplied?
Change in resource prices, change in technology, change in number of suppliers
Name 3 determinants of supply
As price rises demand falls and as price falls; demand rises
What is the law of demand
Inverse relationship
On a demand curve, what is the relationship between quantity and price?
Number of buyers
A very large generation of babies has just been born. Demand for diapers rises. Which is the determinant is this?
As your income increases your demand for an inferior good falls. As your income decreases your demand for an inferior good rises
Explain the relationship between income and inferior good.
Change in buyer taste, change in buyer expectation, change in number of buyers, change of price or related good, change in income
Name 3 of the determinants of demand
Categories: Macroeconomics