macroeconomics

supply and demand : hurricanes

there will be a demand for resources such as water and food, causing an increase of demand and a shift to the right , and there will be a decrease in supply so a shift to the left.

taxes : supply and demand

there will be no change in the demand but the supply will shift left and supply decreases. there will be an increase in cost and it becomes more expensive to make or sell each unit.

subsidies : supply and demand

there will be no change in the demand but the supply will shift right and supply increases. the cost of productions for producers lowers and its cheaper to produce every unit.

price floor

• minimum legal price

• above equilibrium creates surpluses

• minimum wage

price ceiling

• maximum legal price

• below equilibrium creates shortages

• rent control

demand increases

equilibrium price increases

equilibrium price increases

demand decreases

equilibrium price decreases

equilibrium price decreases

supply increases

equilibrium price decreases

equilibrium quantity increases

supply decreases

equilibrium price increase

equilibrium quantity decreases

surplus

quantity supplied > quantity demanded

shortage

quantity demanded > quantity supplied

equilibrium

quantity demanded = quantity supplied

change in supply

curve shifts

change in quantity supplied

movement along the curve

determinants of what shifts supply

• input costs

• technology

• number of sellers

• taxes and subsidies

• expectations

law of supply

• price increase = quantity supplied increases

• price decrease = quantity supplied decreases

• graph = supply curve slopes upward

decreased demand

opposite effects

change in demand

curve shifts

quantity demanded

movement along the curve

determinants of an increase in demand

• higher income (normal goods)

• lower income (inferior goods)

• more buyers

• higher price of substitutes

• lower price of complements

• favorable expectations

• popularity changes

law of demand

price increase = quantity demanded decreases

price decrease = quantity demanded increases

graph = demand curve slopes downward

market incentives encouraging innovation

offers competitive advantages to businesses and individuals who improve products

market incentives rewarding sucessful products

demand increases, businesses charge more and expand profit margins

market incentives promoting economic growth

when an economy increases its capacity to produce goods and services over time.

markets

• product markets

• factor markets

microeconomics

• individual consumers

• individual firms

• specific markets

macroeconomics

• inflation

• unemployment

• economic growth

• the overall economy

is the price of gasoline micro or macro economic?

microeconomic : focuses on specific good

positive statement

• describes facts

• can be tested with evidence

normative statement

• express opinions or value judgements

• cannot be proven true or false

scarcity

• resources are limited

• wants are unlimited

• scarcity forces choices

scarcity example

you have two exams tomorrow but only enough time to fully prepare for one

trade off

giving up one thing to obtain another

opportunity cost

the value of the next best alternative

trade off example

choosing to attend a football game instead of working a shift

opportunity cost example

• lost wages

• lost study time

budget line : on the line

attainable and efficient use of income

budget line : inside the line

attainable but not fully using income

budget line: outside the line

unattainable

productive resources (factors of production)

• land

• labor

• capital

• entrepreneurship

land

natural resources

labor

human effort

capital

tools, equipment, machinery used in production

entrepreneurship

combining resources and taking risks

increasing opportunity cost

• some resources are better at producing certain goods

• this results in opportunity costs to increase as production shifts toward one good

economic growth

causes :

• more resources

• better technology

• improved skills and education

result:

PPF shifts outward

trade benefits

• increased consumption opportunities

• specialization

• gains from exchange

types of economic systems

• market economy

• command economy

• mixed economy

market economy

• decisions made by individuals and firms

• prices guide resource allocation

command economy

• government makes production decisions

mixed economy

• combines market forces and government involvement

characteristics of market economy

• private property

• voluntary exchange

• competition

• profit motive

role of prices

• signal information

• coordinate economic activity

• encourage producers and consumers to adjust behavior

governments role

• protect property rights

• providing public goods

• regulating markets

• correcting market failures

participants

• households

• firms

efficiency

maximizing total benefits from available resources

equity

fairness in the distribution of resources

efficiency vs equity

• polices that improve equity may reduce efficiency

• polices that improve efficiency may reduce equity