EC 111 - EC 111 MacroEconomics. tyeh@cba.ua.edu 269 Alston...

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EC 111 MacroEconomics. tyeh@cba.ua.edu 269 Alston Office Hours 1:30-3:00 MW August 24, 2007 Ch 1. What is Econ? Microeconomics (EC110) The branch of economics that studies the choices of small economic units, including households, usiness firms, and government agencies Macroeconomics (EC111) The branch of economics that studies large scale economic phenomena, particularly inflation, unemployment, and economic growth Macroeconomics is concerned with c. the rate of unemployment Economic Model An economic model is simplified, small scale version of some aspect of the economy. Economic models are often expressed in equations, by graphs, or in words Theory A theory is a deliberate simplification of relationships whose purpose is to explain how those relationships work. Ch3. Resources (inputs or factors or production) Include natural resources (land) Labor (workers) and capital (economic capital) Note: Economic capital refers t o machinery (computers and equipment used in production), office building and factories. Economic capital differs from financial capital (stocks or bonds). What matters for real economy output real GDP is economic capital An economic agent compares benefits and costs (opportunity costs) associated with each alternative and make a rational decision under which net benefits (benefits minus opportunity costs) are maximized. Opportunity Cost Is the cost measured by the foregone value of the second best alternative
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Opportunity cost measures the full cost of an option, whereas accounting cost (explicit or out of pocket cost) only measures the monetarycost of an option Opportunity Cost-Expplicit Cost+ Implicit Cost Example You took a vacation to the beaches in Florida. The second best alternative was to attend study sessions in economics. The third best alternative was to work during that period. What is the opportunity cost for you to take the vacation Start taking notes. The principle of increasing (opportunity) costs States that as the production of good expands, the opportunity cost of producing another unit of that good generally increases. The principle holds because resources tend to be special. Just know about resources and opportunity costs. The PPF is affected by supply side factors, such as the quantity of resources and the level of technology. Thus the PPF will shift if there is a change in the amount of resources or in the level of production rechnology. Supply Curve
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EC 111 - EC 111 MacroEconomics. tyeh@cba.ua.edu 269 Alston...

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