macro sec 1: basics of market system

macroeconomics

studys overall economy

microeconomics

studies the decision-making of individual units (households, firms, etc.)

circular flow model

a visual representation of how money, goods, and services move through the economy, illustrating the interactions between households and firms.

broken window fallacy

a concept that argues against the idea that economic activity is boosted by destruction, as it ignores the unseen costs and lost opportunities.

basaits writings

economists must focus on what is seen and what is not seen (ppl tend to focus on what they can see)

economics is study of

how decisions are made when scarcity exists

what model

circular flow model

what graph

production possibilities frontier (shows various combinations of outputs the economy can produce)

normative statement

opinion based ; statement about how the world OUGHT to be

positive statement

descripive / factual ; makes measurable claim about how world is

absolute advantage

ability to produce good using fewer inputs than other producers

comparative advantage

ability to produce a good at a lower opportunity cost as another producer

adam smith in wealth of nations

rejected mercantilism, recommended using absolute advantage as the basis of trade,

imports

goods produced abroad and sold domestically

exports

goods produced domestically and sold abroad.

that which is seen, that which is not seen

is a concept introduced by Adam Smith that distinguishes between the visible effects and the hidden consequences of economic actions and policies

smooth haley tariff act of 1930

is a U.S. law that raised tariffs on imported goods, aiming to protect American industry but resulted in retaliatory measures and worsened the Great Depression.

law of demand

amount demanded for good falls when price of good rises

shifts in demand curve

price expectations, changes in individual tastes, price of related goods, changes in income

normal good

demand falls when income falls and rises when income rises, reflecting consumer preferences for higher quality or non-essential items (luxury car)

inferior good

demand rises when incomes falls and demand falls when income rises (taking the bus)reflects consumer preference for lower quality or essential items.

subsitutes

goods that can replace each other, leading to an increase in demand for one when the price of the other rises. Examples include butter and margarine.

complements

fall in price in one good increases demand for another (ice cream and hot fudge)

law of supply

the higher the price the greater the quality supplied

shifts in supply curve

new technology, input prices, # of sellers

surplus

quantity supplied greater than quanity demanded

shortage

quanity supplied less than quanity demanded

invisible hand

adam smith ; market forces that push price to equalibrium