macro unit 1

macroeconomics

deals with the performance, structure, behavior, and decision-making of an economy as a whole.

fundamental problem of economics

scarcity: unlimited wants, limited resources

positive statement

fact; can be proven

normative statement

opinion

utility

satisfaction

opportunity cost

next best option

trade-offs

alternative choices

full employment

employing all available resources

production possibilities curve (PPC)

shows all the possible production combinations

• assumptions about PPC

  • only 2 goods can be made

  • resources are fixed

  • technology is fixed

• illustrates:

  • efficiency (productive and allocative)

  • scarcity

  • opp cost

  • economic growth + contraction

law of increasing opp cost

as the production of a particular good increases, the opp cost of producing another good rises.

• curve is bowed out

• driven by fact that resources are not equally adjustable for other uses

constant opp cost

means that the opp cost of producing one good in terms of the other remains the same at all points along the curve.

• resources are equally well-suited to producing both goods

• straight-line PPC.

comparative advantage

the ability to produce a good at the lowest opp cost

absolute advantage

ability to produce more of a good or service w/ a given amount of resources than someone else.

law of demand

inverse relationship between price and quantity

determinants of demand

MERIT (market size, expectations, related prices, income, tastes and preferences)

law of supply

direct relationship between price and quantity (this is why the line is upward sloping).