Macroeconomics: Introduction

Macroeconomics vs. Microeconomics 
-Macroeconomics: study of major components of the economy; examples include: inflation, GDP, unemployment, supply and demand
-Microeconomics: study of how households and firms make decisions and how they interact in markets; examples include: supply and demand, marker structure

Positive Economics vs. Normative Economics
-Positive: attempts to describe the world as it is; descriptive (fact); example: minimum wage laws cause unemployment
-Normative: attempts to prescribe how the world should be ; example: the government should raise the minimum wage

Wants vs. Needs
-Wants:desires of citizens; broader than the needs
-Needs: basic requirements for survival; examples: food, water, clothing, shelter

Scarcity vs. Shortage
-Scarcity: most fundamental economic problem that all societies face; how to satisfy unlimited wants with limited resources; example: oil
-Shortage: situation in which quantity demanded is greater than quantity supplied

Goods vs. Services
-Goods: tangible commodities
  1. Consumer Goods: goods that are intended for final use by the consumer
  2. Capital Goods: items used in the creation of other goods; example: machinery
-Services: work performed by someone else

Factors of Production
-1. Land: natural resources
-2. Labor: work force
-3. Capital: 2 types

• human-knowledge and skills a worker gains through experience and education
• physical-human made objects used to create other goods/services; example: machinery

-4. Entrepreneurship: being inventive and a risk taker

Opportunity Costs
-Opportunity Costs: most desirable alternative given up by making a decision (making some type of trade off)

Production Possibilities Graph (PPG)
-Use: Shows ALL the alternative ways to use resources
-The Following can be used Interchangeably:

• Production Possibility Frontier (PPF)
• Production Possibility Curve (PPC)

-Productive efficiency: producing resources at the lowest cost (Any point on the curve)
-Allocative efficiency: combination most desired by society; aka "those in charge" (Where to produce on the curve?)

Law of Increasing Opportunity Costs
- When resources are shifted from making one good or service to another, the cost of productivity of the second item increases

• This occurs because not all resources are equally suited for the production of all goods/services

4 Key Assumptions of the Possibility Graph
-1. Only 2 products can be produced
-2. Full employment of resources
-3. Fixed resources (land, labor, capital)
-4 Fixed technology

• Point 'C'- Attainable but inefficient (inside the curve)

               -3 ways to be inside the curve:
                     1) War
                     2) Famine
                     3) Unemployment

• Point 'A'- Attainable but efficient (on curve)
• Point 'B'- Unattainable (outside the curve)

              -2 ways to be unattainable:
                     1) Technology
                     2) Economic Growth

Example 1

Question 1

   Which point(s) show the economy has the

Answers: 1.(points A, B, C, D)
2, (point E)

   ability to produce?

Question 2

   Which point(s) show the economy        not producing?

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