Macroeconomics- Introduction to Economics

What is macroeconomics?

Macroeconomics is the study of national economics. Rather than looking at individual markets, we are now combining all the markets within one country together to form national economies.

What are the 6 macroeconomic objectives?

1. Steady economic growth

2. A low unemployment rate

3. A low and stable rate of inflation

4. A sustainable level of government

5. An equitable distribution of income

6. A favourable trade balance

What are FOPs

The FOPs are all resources used in the production process of goods and services (CELL)

What is CELL?

Capital

Enterprise

Labour

Land

What is the basic economic problem

Scarcity

Why does scarcity occur

Scarcity occurs when there are finite resources, but infinite needs + wants, so we

How can we solve scarcity issues

We can use rationing systems

What are the three economic questions

What to produce?

How to produce?

For whom to produce?

What is a free market economy

A free market economy is one in which all resources are allocated based on demand, with no intervention from the government

What is a planned economy?

A planned economy is one in which all resources are allocated by the government, who answers all of the basic economic questions.

Advantages of both

Planned:

lack of inequality, equal resources + wages

no unemployment - increases efficiency

lack of negative externalities

sustainable

Free Market:

people are given choice to make their own monetary decisions

as preference changes, so does production, increasing efficiency

efficient- workers need to work hard to earn money to spend

Disadvantages of both

Planned:

illicit markets can arise due to tight legislations

no choice

demotivated workers due to equal wages, decreasing efficiency

greed + corruption

poor planning - misallocated resources

Free market:

potential of inequity (rich/poor) and loss of econ. wellbeing

demerit goofs- loss of wellbeing

no government support

economic fluctuation

unsustainable- infinite wants

negative externalities airse more with a lack of control

What is a mixed economy?

A combination of both planned and free market economies

What is opportunity cost?

The cost of making an economic choice in terms of the next best alternative we could have

What is a Production Possibilities Curve? (PPC)

A PPC is a graph representing all the possible combinations of the capital and consumer goods the economy can produce

What does the curve look like, and what does it represent?

It is a downward sloping curve, with any value on the line meaning there is full employment and efficient resource use, inside the curve meaning there is UE or inefficient, wasteful or non-use, outside meaning production is impossible with current resources, so an increae is needed.

What is the purpose of a PPC?

It is a visual representation to enable users to more easily explain the concepts of scarcity, choice, opportunity cost and efficiency within an economy.

Example of an opportunity cost in a PPC

Moving towards the PPC but giving up production at the same time (i.e more capital less consumer) causes an increase in efficiency but an OC for the consumer goods

Who was Adam Smith?

An 18th century economist considered the founding father of classical economics

What was Adam Smith’s philosphy?

An economy can only achieve prosperity by producing more output in a free market economy for the most beneficial outcpmr for everyone, with the qualuty of products being naturally driven due to efficiency.