MACRO MEGASET

Opportunity Cost

You lose something to gain something, production possibilities frontier

Marginal Decision Making

Side with the marginal, go through life making incremental decisions (cost vs benefit)

Incentives = Behavior

Cut taxes = Spend more money

Trade can benefit all parties involved

When both sides specialize in producing goods where they have a comparative advantage.

Markets are usually efficient

As they facilitate the allocation of resources in a way that maximizes total welfare. In well-functioning markets, prices reflect all available information.

The government can improve market outcomes

by addressing market failures, providing public goods, and regulating externalities. (regulations, laws, copyrights, patents, etc.)

Standard of living depends on the GDP

High GDP means more $ in the economy, more goods, services, and more overall for the people

Prices rise when the government prints too much money

To fix it? Restrict inflation, prices rise rapidly when there is too much money

There is a short tradeoff between unemployment and inflation

When employment goes up, inflation goes down (less/more demand)

Demand

Amount of goods consumers are willing and able to buy at each and every price

Quantity demanded

Amount of a good consumers are willing and able to buy at a set price

Law of demand

As price increases => Lower quantity demanded. As price lowers => higher quantity demanded

Changes in quantity demanded

Price = Quantity demanded => movement on a demand curve

Changes in demand

Factor => Demand => Demand Shift (increase → right, decrease → left)

Factors of demand

Population, preferences, prices of related goods (substitutes, complements), income, expectations

Supply

Amount of goods sellers are willing to sell at each price

Quantity supplied

Amount of goods sellers are willing and able to sell at a specific price

Law of supply

Increase in price = Increase in supply (vice versa)

Factors of supply

Number of sellers, technology, production cost, availability

Equilibrium

Quantity supplied = Quantity demanded