Macro Exam 1

The concept that individuals, firms, and governments have unlimited wants with limited resources to satisfy them.

Think a venn diagram. It shows consumers being able and willing to buy something in the center. A consumer has to have desire to purchase a good at a given price but also has to have the financial means to do so. Able and willing shows demand and combines finance (the able part) and economics (the willing part).

The highest valued alternative given up when making a choice.

-Explicit: Money. Direct monetary costs
-Implicit: Time. Does not consider monetary costs

What you do for other people. They then compensate you for what you do.

land, labor, capital, and entrepeneurial ability.

Land -> rent. Labor -> wages. Capital -> Interest. Entrepeneurial Ability -> profits

Physical, financial, and human. Remember, human capital is compensated by formal education.

Human capital is the most important form of capital because we are no a service economy and not a manufacturing economy. Service economies depend on human capital.

Work experience, formal education.

1. What goods and services are we going to produce?
2. How are we going to produce goods and services?
3. Who are we going to sell these goods and services to?

With price!

Think of the three circle venn diagram with mores, culture, and laws. Laws is where you codify your culture, and you need laws, culture, and mores for a functioning society.

Desirability of goods and services vs. money

Additional desirability of one more unit

Intensity of desirability

How do you quantify value? AKA how you hang a number on intensity

Producing at the lowest possible cost

Allocating scarce resources according to consumer preference

When you have all different prices in the same venue. Cost stays the same but profit increases

Analysis "as it is" -- numbers oriented

Analysis "as it should be" -- think preachers and politicians. ex. "We should be building new infrastructure!"

They're a business owner, risk taker, and answer the 3 economic questions. (A business owner is a risk taker becuase he loses money if he incorrectly answers the 3 economic questions!).

1st time around

Practical application of invention

Processes of turning inputs into outputs

(Price - Average Total Cost) x Quantity

Money as a medium of exchange. Draw the diagram!

Shows how money and goods and services flow in an endless cycle. Draw it!

Wins! Think the Detroit River Boulder story. Moral of the story: Money always flows through.

The logic of something.

Quadrant 1

Curve shows maximum combination of goods given available resources and current technology (note you can have a straight curve as well).

It answers what is the best combination or which product to produce more of with the 3 economic questions. Ex. "What is the correct quantity?" . And remember, the 3 economic questions are always answered by price!

Any point on the curve is both obtainable and efficient

Any points inside the curve are obtainable but not fully efficient

Anything outside the ppf curve is not obtainable because it is outside our means.

1. adding available resources (graph of adding available resources moves the entire frontier "out")
2. improve / new technology (graph of new technology has us start from the same point if we are only improving technology in one design)
Draw them!

Ability of inidividual firm or country / government to produce more of a good or service with the same resources

REMEMBER: This is the basis for specialization! It is the ability to produce greater quantity at the lowest opportunity cost (the person who is able to do this is the supplier!) Thnk our bananas ex. Costa rice has a comparative advantage over the US because they dont have as many expenses.

To specialize and trade!

Marketplace

"The protection of" personal property rights. The very first personal property rights a person has is their own life! you CANNOT underestimate the power of personal property rights. Think Nazi Germany- If you don't protect personal property rights, you see the market breka down.

Check