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Macroeconomics Notes 1-24-08

Macroeconomics Notes 1-24-08 - Macroeconomics Notes All...

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Macroeconomics Notes 1/24/08 - All societies face unlimited wants but limited resources a economic problem - The three main question of the economic problem: 1. What to produce? 2. How much? 3. For whom? - Limited resources a scarcity o All goods are relatively scarce o Opportunity cost : the alternative that is sacrificed when choosing what to produce (A & B; A is sacrificed if you choose to produce B and vice versa) - Individuals also face the economic problem o Example: a student has an income of $200 per month This individual student can spend this amount on two individual goods: bar or movie The bar costs $20 and the movie costs $10 The student has a budget line which limits their choices - Opportunity cost (from C to E) of going to the movies twice a month to the one bar visit that had to be sacrificed (trade-offs) - Greatest satisfaction will be attained if students get more of both commodities - Rational behavior (purposeful behavior) : economists assume that individuals are rational
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