Macroeconomics Unit I: Chapter 2 Introduction

MACROECONOMICS VS. MICROECONOMICS

      Macroeconomics

• Study of the entire economy which covers the ups and downs of the economy.
• WHOLE  

         Ex. Unemployment

               GDP

               Inflation

        Microeconomics

• Study of parts of the economy in which people make decisions and how those decisions interact.
• SEGMENTS

         Ex. Supply and Demand

               Market Structures

POSITIVE ECONOMICS VS. NORMATIVE ECONOMICS

        Positive Economics

• Way the economy actually works
• FACT                                                                                                                                

         Ex. Minimum wage laws cause unemployment.
               The rising price of crude oil on world markets will lead to an increase in cycling to                            work.
               A reduction in income tax will improve the incentives of the unemployed to find                                work.

        Normative Economics

• Way the economy should work.
• OPINION

         Ex. Price of gasoline is too high.

               Pollution is the most serious economic problem.

               Unemployment is more harmful than inflation.

NEEDS VS. WANTS

         Needs

• Required for survival

         Ex. Food

               Water

               Protein 

               Vitamins

               Minerals

         Wants

• Desires of citizens

         Ex. Ice Cream

               Pizza

               Range Rover

               Playstation 4 

SCARCITY VS. SHORTAGE

        Scarcity

• Most fundamental economic problem that all societies face.
• Trying to satisfy unlimited wants with limited resources.
• PERMANENT                                                                                                                   

         Ex. Each year a limited amount of the flu vaccine is available to the population,                                    meaning there is not enough for each individual to be vaccinated.
               When hurricanes have incapacitated refineries on the Gulf Coast, oil prices                                    increase because of the possibility of scarcity of gas for vehicles. 

         Shortage

• Quantity demanded is greater than quantity supplied.
• TEMPORARY

         Ex. A bad crop causes shortage in carrots.

CONSUMER GOODS VS. CAPITAL GOODS

        Consumer Goods

• Goods that are intended for final use by the consumer.

          Ex. Food

               Beverages

               Video Games

        Capital Goods

• Items used in the creation of other goods.

         Ex. Factory Machinery

               Trucks

               Tools

        Services

• Work that is performed for someone else.

         Ex. Landscape service
               Laundry places
               Cleaning crew

        Factors of Production

• Land (natural resources)
• Labor (workforce)
• Capital (human and physical)

                      Human: knowledge and skill gained through education and experience.

                      Physical: human made objects used to create other goods and services.

• Entrepreneurship (innovator and risk taker)

     Trade-offs

• Alternatives that we give up when we choose one course of action over another.

  Opportunity Cost

• Form of a trade-off; most desirable alternative given up by making a decision.

        “Guns or Butter”

• Where government spends money
• Military or agriculture