macroeconomics module 1-4

Economics

the study of scarcity and choice

Economy

a system that coordinates chioces abt production with chioces abt consumption & distributes goods & services to ppl who want them

Market Economy

production & consumption are the result of decentralized decisions by firms & individiuals

Command economy

indsutry is publicy owned & there's a central authority making produciton & consumption decisions; issue is a lack of incentives

Property rights

establish ownership & give ppl the right to trade goods & services with each other; creates incentives in market economies

Marginal decisions

comparing costs & beneftis of doing something over another thing

Marginal benefit

the gain of doing somethingone more time

Marginal cost

the cost of doing something one more time

Marginal analysis

analyze if the marginal benefit exceeds the marginal cost

Why do ppl make decisions?

resources are scarce

Resource

anything that can be used to make something else

Land, labor, capital, entrepenourship

Factors of production

When are resources scarce?

When there's not enough of it to satisfy people's needs & wants.

What is society's choice equal to?

the sum of all individuals' decisions

Opporutnity cost

The value you give up when you make a particular decisions

Macroecnomics

Abt overall ecnomy as a whole

MIcroeconomics

Abt how individuals make decisions & how they interact

Economic aggregates

economic measures like unemployemnet rate, inflation rate, & GDP

Ecnomic analysis

analysis used to answer questions abt how the economy works

Positive economics

Questions with definitive right or wrong answers

Normative ecnomics

How the economy should work; up to interpretation

When do disagreements happen?

When they have diff values or they disagree abt the models used

Recession/contraction

the real GDP & output decreases over time; deflation & rising unemployment; Spending slows down; (downturn on business cycle)

Recovery/expansion

the GDP grows at a rate faster than its long run trend of ecnomic growth

Propserity

Any portion above the trough

Depression

trough on the business cyclec

Employment

total # of ppl working for pay

Unemployment

total # of ppl looking for a job & don't have one

labor force

sum of employed & unemployed ppl

Unemployment rate

% of labor force unemployed

Output

The quantitiy of goods & services produced

Aggregate output

the economy's total production of goods & services during a time period

Inflation

the overall price of all goods increase

Deflation

a fall in the overall price level

price stablity

the overall price levels changing only slowly

Economic growth

an increase in the max possible output of an economy

GDP

the value of goods & services produced in the ecnomony per person e

Model

any unsimplified version of reality that's better to understand a real life situation

Other things equal assumption

alll other relavant factors remain unchanged

Thought experiments

Simplified, hypothetical versions of real-life situations

When does PPC shift?

When quality or quantitiy of resources eincreases, better technology comes, & more educated population

Trade-off

when you give something to have something else

Production Possibilities curve

shows the trade offs in an econmoy that only produces 2 goods; shows max quality of one good that can be produced for each possible quantity of the other good produced

Efficient

when there's no way to make anyone better off without making one person worse off; no unused opporutities

Productive efficiency

If it produceds at a point on the PPC curve

Allocative efficiency

if it produces at a point along its PPC that make consumers as well off as possible

LInear PPC Curve

Constant

Concave PPC curve

Increasing Opprotunity cost curve

Technology

the technical means for producing goods & services

Economic growth, price stablility, low unemployment

goal of macroecnomic policies

Absolute advantage

country who produces the most

Comparative advantage

country with the lower opportunity cost

trade

in which people divide tasks among themselves and eachperson provides a good or service that other people want in return for different goods

and services that he or she wants.

gains from trade

people can get more of what they want through trade than they could if they tried to be self-sufficient.

specialization

each person specializes in the task that he or she is good at performing.

comparative advantage

producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people.

absolute advantage

in producing a good or service if he or she can make more of it with a given amount of time and resources.

terms of trade indicate

the rate at which one good can be exchanged for another.