ECON 102.docx - ECON 102 Introduction to Macroeconomics...

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ECON 102 Introduction to Macroeconomics WEEK 1 (17 - 23 AUG) Introduction to Macroeconomics Economics - the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. Economics has three fundamental concepts: Opportunity cost Marginalism Efficient markets Opportunity cost - the benefit that is missed or given up when an investor, individual or business chooses one alternative over another. Marginalism - the process of analyzing the additional or incremental costs or benefits arising from a choice or decision. Efficient markets - a market in which profit opportunities are eliminated almost instantaneously. Industrial Revolution The period in England during the late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities. The study of economics is an essential part of the study of society. Microeconomics - the branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units (firms and households). Macroeconomics - the branch of economics that examines the economic behavior of aggregates (income, employment, output) on a national scale. Positive economics - an approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works. Normative economics - an approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics. Model - a formal statement of a theory, usually a mathematical statement of a presumed
relationship between two or more variables. Variable - a measure that can change from time to time or from observation to observation. Ockham’s razor - the principle that irrelevant detail should be cut away. Empirical economics - the collection and use of data to test economic theories. Four criteria are important in judging economic outcomes: Efficiency Equity Growth Stability Efficiency - efficiency In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost. Economic growth - an increase in the total output of an economy. Stability - a condition in which national output is growing steadily, with low inflation and full employment of resources. WEEK 2 (24 - 30 AUG) Demand and Supply Law of Demand (negative relationship between price and quantity demanded): As price rises, quantity demanded decreases As price falls, quantity demanded increases Determinants of demand: Price of other goods (complementary vs substitute goods) Income (normal vs inferior goods) Consumer expectation Tastes or preferences Number of potential customers in the market Complementary goods - goods that go together. Decrease in the price of one results in

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