MACRO

• Economics


  An inquiry into the nature and causes of the wealth of the nations
• Macroeconomics


  • Focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product, and inflation
• Good


  Anything that yields satisfaction to someone. Anything used to satisfy a person's wants and desires
• Types of Goods


  • Tangible (material goods and commodities)
  • Intangible (services)
• Classification of Goods


  • Consumer Goods (yield satisfaction directly)
  • Capital Goods (used in the production of other goods and services)
  • Essential Goods (used to satisfy basic needs)
  • Luxury Goods (contribute to comfort and well-being)
• Economic Goods


  Goods that are both useful and scarce, have a value attached and a price has to be paid for its use
• Types of Production


  • Manufacturing or industry (factory)
  • Agricultural production (farm)
• Economic Resources/Factors of Production

  • Land (natural resources)
  • Labor (human effort)
  • Capital (man-made goods used in production)
  • Entrepreneur (combines resources for production)
• Rent


  Income earned by people who own land and offer it to others for its use
• Wages


  Return on the use of labor, including salaries, commissions, tips, and other forms of remuneration
• Interest


  Income which capital earns
• Profit


  Income earned by the entrepreneur, the amount left behind after all allocations to the other economic resources have been made
• Scarcity


  The reason why people economize, refers to the limitations that exist in obtaining all the goods and services that people want
• Fundamental Economic Problems


  • What is produced and how much? (goods and services)
  • How shall goods be produced? (resources)
  • For whom shall goods be produced? (Distribution)
• Types of Economic Systems

  • Traditional Economy (subsistence, primitive)
  • Command Economy (production owned and dictated by government)
  • Market Economy (privately owned resources, decisions by people, competition)
• Mixed Economy


  Applies a mixture of the three forms of decision-making, but more market-oriented
• Opportunity Cost


  The value of the alternatives that have to be given up
• Inputs


  • Land (gifts of nature)
  • Labor (human resource)
  • Capital (man-made durable goods)
• Outputs


  Useful goods and services resulting from the production process
• Positive Economics


  Deals with what it is, attempts to explain how an economy operates
• Normative Economics


  Deals with what should be
• Basic Tools of Economics

  • Logic (to reason and draw conclusions)
  • Mathematics (to conceptualize and quantify)
  • Statistics (to describe and test hypotheses)
  • Observation
  • Definition and assumptions
  • Deductions
  • Empirical Testing
• Macroeconomics


  • Studies the economy as a whole, presents the picture of totals, income, output, employment, spending, and price level
• Microeconomics


  • Studies the economy in parts, studies the price system, the individual consumer, and the individual firm
• Macroeconomics and Microeconomics are both important, one cannot study the whole without studying the parts
• Microeconomics


  Management of household
• Macroeconomics


  State management
• Basic Economic Questions


  • What to produce?
  • How to produce?
  • How much to produce?
  • For whom to produce?
• Labor-intensive production


  Use more human resources or manual labor in producing goods and services than capital resources
• Capital-intensive production


  Employs more use of technology and capital goods like machineries and equipment in producing goods and services rather than the use of labor resources
• Underproduction (shortage) results in a failure to meet the needs and wants of society, overproduction (surplus) results in an excess supply of goods and services which may just go to waste
• Market Segmentation


  • Demographic
  • Psychographic
  • Use-based
  • Benefit
  • Geographic
• Scarcity


  Society has limited resources and therefore cannot produce all the goods and services people wish to have
• Interdependence: Solution to Scarcity


  Individuals and countries should specialize in producing things in which they have a comparative advantage and then trade with other countries that specialize in something else
• 3 E's of Economics

  • Efficiency (society gets the most from scarce resources)
  • Equity (benefits distributed fairly)
  • Effectiveness (attainment of goals and objectives)
• 10 Principles of Economics

  • People face tradeoffs
  • The cost of something is what you give up to get it
  • Rational people think at the margin
  • People respond to incentives
  • Trade can make everyone better off
  • Markets are usually a good way to organize economic activity
  • Governments can sometimes improve economic activity
  • The standard of living depends on a country's production
  • Prices rise when the government prints too much money
  • Society faces a short-run tradeoff between inflation and unemployment
• Kinds of Resources


  • Natural
  • Capital
  • Human
• Circular Flow Diagram


  A visual model of the economy, shows how dollars flow through markets among households and firms

  
• Production Possibilities Frontier


  A graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology
• Prices rise when the government prints too much money