Micro/Macro Economics, Scarcity, Opportunity Cost, Government Role A Structure (Micro vs. Macro) Microeconomics Study of markets, consumers, firms, sellers, workers and the governmental influence on outcomes of the market on an individual basis. Macroeconomics Study of the whole economy, by combining all decisions made by individuals into a big picture. Includes analyzing unemployment, inflation, economic growth, & policies affecting the economy. The Beginning of Economic Analysis Economists are

Economic Efficiency, Allocative/Technical Efficiency, PPF Economic Model, Diminishing Marginal Returns, Marginal Cost Economics is the study of how individuals, businesses and governments make decisions to allocate limited resources to satisfy as many wants as possible (maximum satisfaction). An economic model gives us an abstract description/explanation of the complex allocation of limited resources, by simplifying assumptions. Model: A Production Possibilities Frontier (PPF) The Production P

Factors Influencing Supply/Demand, Quantity Supplied/Demand, Equilibrium This chapter is all about building & understanding an economic model of markets and the relationship between supply & demand. Famous economist, Alfred Marshall, once said that supply and demand are like two halves of a scissor; you don’t know which half is doing the work. To make the model as easy as possible to understand, we will assume ceteris-paribus (Latin for “with other conditions staying constant”) for all examples

Elasticity, Effects of Price Changes, Price Floors/Ceilings, Taxes & Subsidies Price Elasticity of Demand (PED) How do you maximize revenue by deciding how much you should price your good? It depends on which is greater: the effect of the change in price or the effect of the change in quantity. Elasticity is a measure of the sensitivity of changes in one variable to changes in another. Elastic Demand is when a change in price causes a relatively large change in quantity demanded. We find the ela

Nature of Demand Curves, Relationship between Marginal Utility & Price, Rational Consumer Behaviour, Necessities Total Utility, Marginal Utility & Marginal Analysis Total Utility Total Utility represents the total amount of satisfaction gained by consuming a good/service. The more you consume of something, the more satisfaction you get. Utility has no units! How do you calculate utility? Marginal Utility Marginal Utility is the change in total that one gets from consuming one more unit of a good

Total/Marginal/Average Products, Total/Marginal/Average Costs, Short/Long Run Inputs & Outputs What are the 3 Factors of Production? Factors of production are intermediate goods (also known as inputs); goods that will be used to create other goods & services. Such as raw materials, parts or unfinished goods! Labour: All the physical & mental inputs of human beings. Do animals count as labour? Capital: Machines, tools, buildings & inventories. Any tool! Does capital in this sense also mean invest

Inputs, Production & Costs in the Long Run What is Short Run? A period in which at least one factor of production (input) is fixed. Usually, labour is variable & capital is fixed. What is Long Run? A period in which no factors of production are fixed, they’re all variable. Efficient Combinations of Labour & Capital What is Marginal Analysis? The process of comparing the change in benefits with the change in costs resulting from an action. Diminishing Marginal Product As a firm increases the amo

Perfectly Competitive Markets, Role of Profits, Allocative/Technical Efficiency Types of Markets What are the 4 Types of Competitive Models? Number of competitors significantly affects amount of influence individual firms have on price. Perfect Competition: Lots of producers, free entry, product uniformity & consumers can compare prices. Monopoly: 1 firm & it has huge influence over the price (within limits the law of demand). Monopolistic Competition: Many firms but each have a ‘monopoly’ on th

Conditions of Monopolies, Competitive Markets, Profit-Maximizing Monopolies, Dead Weight Loss of Monopolies, Price Discrimination What is a Monopoly? A single firm in a market with barriers to entry & no close substitute goods. Best example are local utilities (such as water, electric, etc). Why Do Monopolies Exist? They arise through legal barriers of entry; cities grant rights (usually with price controls) to 1 firm to provide water, electricity, natural gas, cable & phone service to simplify

Monopolistic Competition & Oligopolistic Competition What is Monopolistic Competition? A market with many competitors all producing slightly different products. Many producers. A variety of types of products, each one slightly different. Freedom of entry & exit. Lots of information about buyers & other sellers. We assume that firms have a lot of knowledge about to how to produce its product effectively. This means that similar firms will face similar cost functions. Short-Run Equilibrium in Mono

Antitrust Law, Regulations to Increase Economic Efficiency, Natural Monopolies Antitrust Law What are Antitrust Laws? Legislation that restricts deliberate formation of monopolies & prevents firms from engaging in anticompetitive practices. It’s intended to prevent practices that reduce competition & lead to economical inefficiency where prices are higher than they need to be, output is less than it otherwise would be, and technological progress is slowed. Where do Antitrust Laws Come From? Stan

Economic Policy, Economic Efficiency, Externalities, Private vs. Public Producers What are Market Failures? When private markets do not produce an economically efficient allocation of resources. Basically, when the private market does not maximize total surplus. What are Some Reasons For Market Failures? Monopolies: May not produce economically efficient amounts of output. However, in some cases, we may need monopolies to realize economies of scale. Externalities: Some products generate costs &

Incomes & Wages; Productivity; Why Some Earn More Than Others; Labour Unions Changes in Income Quick Facts of Wages & Salaries 70% of all income is earned in the form of wages & salaries. Nominal wages (not adjusted for inflation) have grown from $2.09 per hour in 1964 to over $23 per hour in 2016. Income varies among professions. Physicians make $200,000 per year but fast food cooks make $20,000 per year. Median Nominal Wages & Average Income Over Time Poverty in America Over Time Definitio

Advantages/Disadvantages of Trade, Absolute/Comparative Advantage, Tariffs & Quotas Why Trade? Why Does Trade Occur? Trade occurs between rational people because everyone benefits. Trade enables parties to obtain products they can’t produce themselves, either because they don’t possess resources or because they can’t produce efficiently. Specialization & trade allow us to produce more with the same resources & the average real standard of living is greater as a result. Who’s better off in a trad

GDP, Income, Unemployment, Causes of Unemployment, Inflation, Consumer Price Index Gross Domestic Product: Meaning & Components What is the Gross Domestic Product (GDP)? The value of all the final products produced in a year. Economists use a variety of GDP measures to indicate economic progress. GDP figures are often used to define standards of living. The prices of each product is multiplied by the quantities of each good produced. All spending on every good is added up together. To avoid dupl

Economic Growth, Standards of Living, Capacity, Economic Policies, Opportunity Costs What is Economic Growth? Economists’ Definition: An increase in the capacity to produce. Capacity is how much we can produce if we use all our resources. They use terms like full-employment real GDP, full-employment output, or the potential level of real GDP to refer to the amount we can produce when at full capacity. To economists, ‘economic growth’ is used to describe a movement of the production possibilities

Components of GDP, Forecast GDP, Equilibrium of Spending/Output, Spending Multiplier Gross Domestic Product What is Gross Domestic Product (GDP)? Gross Domestic Product is the value of all the final goods and services produced in a country within a specific time period. The total amount produced (total output or real GDP) equals the total amount of spending individuals & institutions want to do in a year plus the accumulation of inventories. Total output is equal to total income; wages, profits,

Aggregate Demand/Supply, Curve Shifts, Spending, Factors of Production, Employment What is a Recession? A period of significant decline in GDP growth rates & employment lasts more than a few months. Normally, during recessions, production falls, employment falls, and unemployment rises. Historically, inflation tended to rise before recessions and then fall during and after recessions. What is Aggregate Demand & Supply? Aggregate Demand: Total amount of products that consumers (foreign & domesti

Employment, Price Level, Inflation, Government Regulations, Changes in Competition Full Employment What is Full Employment? The level of employment where there is no cyclical unemployment. What is Full-Employment Level of Real GDP? The level of output or real GDP at full employment. What happens if actual employment is greater than full-employment? The economy will begin to experience increasing rates of inflation. Full Employment on an Aggregate Supply & Demand Curve The second graph shows t

Money’s Economic Function/Creation, Interest Rates/Bond Prices, Time Value of Money Money What is Money? Anything that’s commonly used to buy & sell goods/services. Money is referred to as currency if it is the dominant circulating medium of exchange. 3 Important Economic Functions (or Characteristics) of Money Is it a good medium of exchange? Can you use it as a method of payment for products? Is it a store of value? Can you store it & use it later? Bitcoin is not a valid store of value since i

Role of the Central Bank, Monetary Policy Tools, Challenges in Using Monetary Policy The Federal Reserve System What is a Central Bank? A bank responsible for the management of a nation’s money supply that typically serves as a regulator of the banking system. Its primary responsibility is to maintain a stable & effective monetary system. It also distributes currency, is responsible for the design and implementation of monetary policy, engages in bank supervisory activities, the setting of margi

Effects of Changing Taxes & Spending, Challenges of Fiscal Policy, Deficits, Surpluses, Debt, Appropriate Fiscal Policies under Certain Economic Circumstances Fiscal Policy Tools What is Fiscal Policy? Most often refers to deliberate actions by governments to change taxes, spending on products & transfer payments to influence economic conditions. Fiscal policy also includes tax & spending changes undertaken for other reasons. Government spending is financed through taxes & borrowing. Revenues ar