Intro to Macro Notes

A situation In which unlimited wants exceed the Ilmlted resources unattached to fulfill those wants Economics The study of the choices people make to strain their goals, given their incomparable resources. Economic Model A simplified version of reality used to analyze real-world economic situations.Often based on unrealistic assumptions that alter the problem at hand without substanti completelyy affecting the validity of the answer No one model can address every important topic, so we will learn diff models as we study difftopics Economic analysis may be positive or normative Positive analysis Analysis interested with what is Positive statements can be evaluated as true or false using only data. For congressman, After speeding cameras were Installed on 1-38, the average speed of motorists regrets reased. Normative analysis Analysis concerned with what ought to be.Normative statemnts involve personal values, so they cannot be evaluated as true or flase using only data the gove rnemtn should plant addition speeding cameras on 1-380 Economics is studied on two levels Microeconomics The study of how households and firms make choices, how they nteract in markets, and how the government attempts to influence their choices. Macroeconomics The study ot the economy as a whole including topics such as Inflation, unemployment, and economic growth. Micro and macro are closely Interwlned because changes In the overall economy arise from the decisions of individual households and firms.CHAPTER 2 Trade off The idea hat because of scarcity, producing much of one good or assist means producing less of another good or run PPH A curve snowlng tne maxlmum attalnaDle comDlnatlons 0T two products tn ay be produced with available resources and current technology The PPF is an economic model used to analyze the tradeoffs that individuals firms, and countries face when deciding how to employ their scarce resources. Combinations outside the PPF are unattainable, given the ava ilable resources and current technology (scarcity) Combinations inside or on the PPF are attainable, given current shit.Inside the PPF is ineffificent, reosuces are not world used and possible for economy to produce more of one without making more of other Comibinations of the PPF are efficient because the maximum output obtained from he available resouces are current technology so it is impossible for the economy to produce more of one good without producing less of the other(Trade ofO Oportunity cost The highest-valued alternative that must be given up to engage in an activity Every choice has an opportunity cost because every choice has a next-best alternative In our pPF example near can use all is avaible resources and current technology to produce either 200 laptops per week or 400 diggingss per week 200L=400T so 1 L=2T and IT=O. L airlesss Marginal opportunity cost of 1 laptop is constant at 2 tablets, meaning that for Near to produce 1 more laptop, it must give up producin g 2 tablets inversely, Nears marginal opportunity cost of 1 tablet is constant at one-half of a laptop, meaning that for Near to produce 1 more tablet, it must give up producing one-half of a laptop In the same example, Far can use all resources and currnet technology to produce either 220 laptops per week or 1100 tablets per week 220L=1100T, so IL-5T and IT=. 2L Fars marginal opportunity cost of 1 laptop is constant at 5 tablets, and Fars marginal opportunity cost of 1 tablet is constant at one-fifth ofa laptopA bowed-out PPF illustrates increasing marginal opportunity costs as the economy increases it doing of one good in one-unit increments, it must decrease tis production of the other good by larger and larger amounts (see page 44 of the textbook for a numerical example) I nls occurs Decause some resources are netter sultea to produce one g ratner than the other A bowed-out PPF is more realistic than a straight-line PPF but we use straight-line PPFs for simpleness (the conclus ions are the same for both) At any given time, the resources available to an economy are fixed, but over time, the esources available to an economy may increase or decrease. When an economy gains resources, its PPF shirts outbound, and when an economy loses resources , its PPF shifts inward An improvement in technology makes it possible for an economy to produce more goods and services with the same amount of resources, so the economys PPF shifts outward when technology improves. Economic Growth The ability of the economy to increase the production of goods and services. Outward shifts of an economys PPF represent economic growth EXAMPLES illustrate the effect of each of the interest on a bowed-out PPF for corn and computersComparative advantage The ability of an individual, a firm or country to produce a good or service at a lower opportunity cost than competitors Near has the compartative advantage in the production of laptops Fars marginical opportunity cost of 1 laptop is 5 ta blets, plot of ground nears marginial oppurnity cost of 1 laptop is only 2 tablets. Far has the relative advantage in the production of tablets. Nears marginal opportunity cost of 1 tablet is one-half of a laptop, while fars marginal opportunity cost of 1 tablet is only one-fifth ofa laptop. It is possitble o have the absolute advantage without having comparative advantage n production of that good (far and laptops) It is possible to have comparative advantage without having absolute advantage too. near and laptops) Gains from trade arise form distinctiveness and trade are based on comparative advantage.