Micro vs Macro

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Micro vs. Macro Economics
Micro-indiidual consumers/firms
Macro-economic aggregates-GDP, inflations, unemployment
Markets-opportunity for exchange
1) Opportunity Costs-value of the next best for gone alternative when a decision is made
-all decisions involve an opportunity cost (assuming the firm operates efficiently) 2) Marginal Analysis-analyze situations involving incremental change -marginal: something is changing by a small amount (incremental/one-unit change) 3) Laws of supply and demand-very powerful & if you interfere w/them there will be negative consequences 4) Trade off between economic efficiency & economic equality 5) Mutual gains through voluntary exchange

-if transactions occur & they’re voluntary then all parties must benefit otherwise the transaction won’t occur 6) Extranality-someone outside of a transaction that’s affected by that transaction Production Possibility Frontier (PPF/PPC)-shows all combinations of 2 goods that CAN BE produced w/currently available resources & technology *wheat&soybeans graph example Notes:

1) PPF slopes down
why? Limited resources
2) MOST PPF’s are curved out from the origin
why? b/c resources tend to be specialized
Principle of increasing marginal opportunity cost- as out put increases, the opportunity cost of production increases w/each unit *wheat&soybeans graph example
PPF shifts w/increased resources and/or improvements in technology Capital goods-good used to make another good consumer goods-good purchased for own use -those economies that emphasize production of capital goods tend to grow faster

6/22/10
Demand-is NOT a #-it IS a collection of price/quantity combinations showing how much of a good/service a consumer is willing & able to purchase at various prices EX) QuantityPrice
10 85
13 114
16 143
20 182
27 251.50(25=quantity demand-specific # corr. to a specific price) 34 321
50 48.25
-EX shows Lawrence’s demand for Coke
“Law” of Demand-holding everything else constant, as the price of a good/service decreases, a consumer will purchase in increased quantities

*Demand curves score down

-Increase in quantity demanded-note that it’s caused by a decrease in price and it’s graphed as a movement along the demand curve (a change in quantity demanded is caused ONLY by a change in the price of the good/service studied and is graphed as a movement along the demand curve)

-Increase in demand-note that it’s caused by a change in something other than the price of the good/service studied & it’s graphed as a shift of the demand curve (a change in demand is caused by a change in something OTHERT THAN the price of the good/service studied and it’s graphed as a shift of the demand curve)

Influences on Demand, slopes down(cause the demand curve to shift) 1) changes in income
a) normal good-an increase in income causes an increase in demand (D )
b) inferior good-a decrease in income causes increase in demand (D)

2) changes in prices of other goods
a) substitutes-one good/service used in place of another
-an increase in the price of one good increases the demand for the other good (D)
EX. (nike&adidas)
b)compliments-good/services that are used together
-a decrease in the price of one good increases the demand for the other good (D)
EX. (cd&cd player, shoes&laces)

3) expected change in income
-assume a normal good
If income is expected to increase, this causes an increase in current demand (D) EX. (might lose job so decides to spend less)

4) expected changes in price-if consumers expects the price of the good to increase this will cause an increase in current demand (D)

5) changes in consumer tastes-if consumer tastes change in a positive way this will cause an increase in demand (D)

6) changes in the # of consumers-an increase in the # of consumers causes an increase in demand(D)

Supply-is NOT a #
-it IS a collection of...
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