Unit One: Notes and Need-To-Knows 1/7/2015

               Unit One: Macroeconomics and PPC

Macroeconomics: the study of major components of the economy (ex: inflation, GDP)

Microeconomics: study of how households and firms make decisions and how they interact in markets (ex: supply and demand, market structures)

Positive Economics: attempts to describe the world as it is. Usually a fact. (ex: minimum wage laws causes unemployment)

Normative Economics: attempts to describe how world should be. Usually an opinion. (ex: government should raise minimum wage)

Needs: requirements for survival, things you cant live without. (ex: Alice Yoshinaga)

Wants: desires of citizens (ex: iPhones)

Scarcity: most fundamental economic problem facing all societies. Trying to satisfy unlimited wants with lmtd resources

Shortage: demand is greater than supply. Usually temporary.

Goods: tangible items. (ex: things you can touch)

Consumer Goods: goods intended for final use by consumer

Capital Goods: items used to create other goods

Services: work that is performed for somebody else

Factors of Production: 1. Land

                                     2. Labour

                                     3. Capital - Human: knowledge/skill

                                                       Physical: human made objects used to create goods

                                     4. Entrepreneurship

Trade-Offs: alternatives that we give up when we choose one course of action over another

Opportunity Cost: most desirable alternative given up by making a decision

Production Possibilities Graph: shows alternate ways to use resources

     

Location/Meaning of Points on Graph:

Point D: Efficient

Point B: More of Item X than Item Y

Point C: More of Item Y than Item X

Point A: Inefficient

                    - Population Decline

                    - Recession, War, and Famine

                    - Unemployment

Point X: Growth

                    - Economic Increase

                    - Technology

                    - New Resources

Productive Efficiency: producing at lowest cost, allocating resources efficiently (any point on the line)

Allocative Efficiency: knowing where to produce on curve

Key Assumptions of Production Possibilities Graph: 

                                        1. Two Goods are Produced

                                        2. Full Employment

                                        3. Fixed Resources (Land, Labour, Capital)

                                        4. Fixed State of Technology

                                        5. NO International Trade