MACRO_Class Notes

• 4 factors of production

  1. land
  2. labor
  3. capital (physical & human)
  4. entrepreneurship
• constant opportunity cost


  resources are easily adaptable for producing either good (ex: same ingredients to make pizza & calzones)
• law of increasing opportunity cost


  the more goods you produce, the opportunity cost increases
• • Productive efficiency - products being produced in the least costly way
  • Allocative efficiency - products are being made by the ones most desired by society
• • Absolute advantage - "I can make more of it than you can."
  • Comparative advantage - "Who can make it witht he least amt of resources."
• demand


  the willing & ability to buy a product at different prices
• law of demand


  an inverse relationship btwn price & quantity (ex: inc price=dec. demand & vice versa)
• • utility = satisfaction
  • marginal = additional
  • allocate = distribute
• • consumer goods = created for direct consumption (ex: pizza)
  • capital goods = created for indirect consumption (ex: oven, blenders, knives)
• Rules of Economists:

  1. don't care abt intentions. judge the results
  2. no such thing as "free lunch" (everything costs sombody smth & everything you do costs smth)
  3. look for what is "seen" & "unseen"
• scarcity


  society has unlimited wants & limited resources
• trade-off


  every choice has a cost / all the alternatives that we give up when making a choice
• opportunity costs


  most desirable alternative given up when making a choice
• price doesn't shift the curve/demand, the quantity changes
• supply & demand


  the willingness & ability to produce(sell) products at different prices
• law of supply


  a direct (or positive) relationship btwn price & quantity
• the product market


  the "place" where goods and services produced by businesses are sold to households (ex: walmart, ikea)
• the resource (factor) market


  the "place" where resources (land, labor, captial, entrpreneurship) are sold to businesses (ex: workers)
• factor payments


  payment for the factors of production (rent, wages, interest, and profit)
• public sector


  government
• private sector


  people & companies/businesses
• transfer payments


  when the govt redistributes income (ex: welfare, food stamps, social security)
• 3 major economic goals

  1. promote economic growth
  2. limit unemployment
  3. keep prices stable (limit inflation)
• GDP


  all final good & services produced in a given year

  • limitations: doesn't include quality of life, leisure time, crime, economic variables
• How do you use GDP?

  1. Compare to previous years
  2. Compare policy changes
  3. Compare to other countries
• Productivity

  1. Economic system (ex: more capital (robots) = more products)
  2. Property rights
  3. Capital
  4. Education (Human capital)
  5. Natural resources
• GDP Per Capita

  • GDP divided by the population. It identifies on average how many products each person makes
  • GDP per capita is the best measure of a nation's standard of living
• what IS NOT part of GDP

  1. intermediate goods (ex: don't count the steel bar, count the car)
  2. non-production transactions (stocks, bonds)
  3. used goods
  4. non-market & illegal activities (unpaid work, black market, drugs)
• leakages


  losses of $ (includes taxes, savings, imports)
• people are either considered unemployed, employed, or not in the labor force
• unemployment


  anyone who's actively looking for a job but aren't working
• labor force

  • above 16 years old
  • the sum of employed & the unemployed
• 3 types of unemployment

  1. Frictional unemployment: being btwn jobs/looking for a job (Seasonal unemployment: a type of frictional unemployment due to the time of year & nature) (ex: life guards during winter)
  2. Stuructural unemployment: changes in labor force AKA "creative destruction" (Technological unemployment: type of structural unemployment where automation & machinery replace workers)
  3. Cyclical unemployment: caused from a recession
• The Non-Cyclical Rate of Unemployment 


  frictional + structural unemployment. the amt of unemployment when the economy is healthy & growing

  
  

  * DOES NOT CHANGE *
• full employment output (Y)


  the real GDP created when there is no cyclical unemployment
• actual unemployment

  natural unemployment + cyclical unemployment

  * CHANGES *
• Criticisms of the Unemployment Rate

  1. Discouraged workers: looked for work & gave up
  2. underemployed workers (ex: an engineer working at chick-fil-a)
• labor force participation rate


  % of population in the labor force
• inflation

  the rising general level of prices & it reduces the "puchasing pwr" of money
• Consumer Price Index (CPI)

  • measures prices of a fixed market basket of 300 goods & services
  • urban consumer
  • market basket updated every 2 years
  • base year is usually 100