Ch01 - Macroeconomics Outline

7/25/2019 Ch01 - Macroeconomics Outline

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Chapter Outline and

Learning Objectives

1.1 Three Key Economic Ideas1.2 The Economic roblem That

Every !ociety "ust !olve

1.# Economic "odels

1.$ "icroeconomics and

"acroeconomics

1.% & revie' o( ImportantEconomic Terms

&E)*I+, -sing raphsand /ormulas

CHAPTER

1

CHAPTER

Economics,

Foundations and Models


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Wat Is Tis Class A!out"

Peo#le $a%e coices as te& tr& to attain teir 'oals. Coices are

necessar& !ecause (e li)e in a (orld o* scarcit&.

!carcity+

Economicsis te stud& o* tese coices.

Econo$ists stud& tese coices usin'0000000000, si$#li*ied

)ersions o* realit& used to anal&e real-(orld econo$ic situations.


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Tical /Econo$ics uestions

We (ill learn o( to ans(er uestions li%e tese+

How are the prices of goods and services determined?

How does pollution affect the economy, and how should

government policy deal with these effects?

Why do firms engage in international trade, and how do

government policies affect international trade?

Why does government control the prices of some goods and

services, and what are the effects of those controls?


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Three Key Economic Ideas

1.1

E8#lain tese tree %e& econo$ic ideas+

Peo#le are rational9

Peo#le res#ond to econo$ic incenti)es9 and

3#ti$al decisions are $ade at te $ar'in.


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1. Peo#le Are Rational

Econo$ists 'enerall& assu$e tat #eo#le are rational.

ational+

Rational consu$ers and *ir$s (ei' te !ene*its and costs o* eac

action and tr& to $a%e te !est decision #ossi!le.


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2. Peo#le Res#ond to Econo$ic Incenti)es

As incenti)es can'e, so do te actions tat #eo#le (ill ta%e.

Example:

;

;

;


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Ma%in'

te

Connection

Healt Insurance and 3!esit&

3!esit& is risin' in A$erica, *or )arious reasons.

Is one o* tose reasons ealt insurance"


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The Economic roblem That Every !ociety "ust !olve

1.2

=iscuss o( an econo$& ans(ers tese uestions+

Wat 'oods and ser)ices (ill !e #roduced"Ho( (ill te 'oods and ser)ices !e #roduced"

Wo (ill recei)e te 'oods and ser)ices #roduced"


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1. What@oods and er)ices Will 4e Produced"

Indi)iduals, *ir$s, and 'o)ern$ents $ust decide on te 'oods and

ser)ices tat sould !e #roduced.

An increase in te #roduction o* one 'ood reuires te reduction in

te #roduction o* so$e oter 'ood. Tis is a00000000, resultin' *ro$

te scarcit& o* #roducti)e resources.

Te i'est-)alued alternati)e 'i)en u# in order to en'a'e in so$e

acti)it& is %no(n as te000000000000.

Example: the opportunity cost of increased funding for spaceexploration might be giving up the opportunity to fund cancer

research$



2. HowWill te @oods 4e Produced"

A *ir$ $i't a)e se)eral di**erent $etods *or #roducin' its 'oods

and ser)ices.

Example: % music producer can ma&e a song sound good by

;

;

Example: %s the cost of manufacturing labor changes, a firm might

respond by

;

;



. Who Will 'eceivete @oods and er)ices"

Te (a& (e are $ost *a$iliar (it in te Bnited tates is tat #eo#le(it i'er inco$es o!tain $ore 'oods and ser)ices.

Can'es in ta8 and (el*are #olicies can'e te distri!ution o* inco$e9

tou' #eo#le o*ten disa'ree a!out te e8tent to (ic tis

/redistri!ution is desira!le.



Tes o* Econo$ies

Centrally planned economies

"aret economies

"aret+

Mi8ed econo$ies a)e *eatures o* !ot o* te a!o)e. Most econo$icdecisions result *ro$ te interaction o* !u&ers and sellers, !ut

'o)ern$ents #la& a si'ni*icant role in te allocation o* resources.



E**icienc& o* Econo$ies

Mar%et econo$ies tend to !e $ore e**icient tan centrall&-#lanned

econo$ies.

Mar%et econo$ies #ro$ote+

roductive e((iciency,

&llocative e((iciency,

Tese e**iciencies co$e a!out !ecause all transactions result *ro$voluntary e3change+ transactions tat $a%e !ot te !u&er and

seller !etter o**.



Ca)eats A!out Mar%et Econo$ies

Mar%ets $a& not result in *ull& e**icient outco$es. For e8a$#le+

;Peo#le $i't not i$$ediatel& do tin's in te $ost e**icient (a&

; @o)ern$ents $i't inter*ere (it $ar%et outco$es

; Mar%et outco$es $i't i'nore te desires o* #eo#le (o are not

in)ol)ed in transactions e8+ #ollution

Econo$icall& e**icient outco$es $a& not !e te $ost desira!le.

Mar%ets result in i' ineualit&9 so$e #eo#le #re*er $ore e4uity, i.e.

*airer distri!ution o* econo$ic !ene*its.


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Economic "odels

1.#

Bnderstand te role o* $odels in econo$ic anal&sis.


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I$#ortant Features o* Econo$ic Models

Assu$#tions and si$#li*ications+ e)er& $odel needs te$ in order to

!e use*ul.

Testa!ilit&+ 'ood $odels 'enerate testa!le #redictions, (ic can !e

)eri*ied or dis#ro)en usin' data.

Economic variables+ so$etin' $easura!le tat can a)e di**erent

)alues, suc as te inco$es o* doctors.


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Te cienti*ic Dature o* Econo$ics

Econo$ists tr& to $i$ic natural scientists !& usin' te scienti*ic

$etod. 4ut econo$ics is a social science9 stud&in' te !ea)ior o*

#eo#le is o*ten tric%&.

Wen anal&in' u$an !ea)ior, (e can #er*or$+

; ositive analysis+

; )ormative analysis+

Econo$ists 'enerall& #er*or$ #ositi)e anal&sis.



Ma%in'

te

Connection

ould Medical cool 4e Free"

Forecasts indicate a si'ni*icant sorta'e o* doctors, es#eciall&

#ri$ar& care #&sicians, !& 2020.

Hi' costs o* $edical scool $a&+

; Pre)ent so$e #eo#le *ro$ !eco$in' doctors

; ead #eo#le to #ursue lucrati)e s#ecialties instead o* #ri$ar& care

Would $ore #eo#le !eco$e #ri$ar& care #&sicians i* $edical scool

(ere *ree" And i* so, (ould it !e (ort te cost"

Econo$ic $odels can *ind ans(ers to te #ositi)e as#ects o* tis

de!ate.


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"icroeconomics and "acroeconomics

1.$

=istin'uis !et(een $icroecono$ics and $acroecono$ics.

Mi i d M i



Microecono$ics and Macroecono$ics

"icroeconomicsis te stud& o*

;

;

;

"acroeconomics


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& revie' o( Important Economic Terms

1.%

=e*ine i$#ortant econo$ic ter$s.

T i l i E i



Ter$inolo'& in Econo$ics

i%e all *ields o* stud&, econo$ics uses ter$s or ar'on (it s#eci*ic,

#recise $eanin's.

o$eti$es tese ter$s (ill !e used in (a&s tat di**er e)en *ro$

closel& related disci#lines.

E8a$#les+

C Mi ti t A id


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Co$$on Misconce#tions to A)oid

4elie)in' econo$ics is onl& a!out $one&.

Con*usin' #ositi)e and nor$ati)e anal&sis.

Assu$in' *a$iliar $eanin's *or econo$ic ter$s.

Documents

Ch01 - Macroeconomics Outline