Lecture Notes

Lecture Notes - PRINCIPLES OF MACROECONOMICS(ECON 2 FALL...

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PRINCIPLES OF MACROECONOMICS (ECON 2) FALL 2004 LECTURE NOTES 9/30/04 Economics – Making choices using scarce resources (because people always want more). Scarce resources usually have prices (unless they are natural resources that are naturally depleted). People Face Tradeoffs – To get one thing, you have to give up something else. Making decisions requires trading off one goal against another. Efficiency – Producing the greatest amount of goods and services. Valuability – Produced goods and services must be the most highly valued goods and services. Equity – A fair distribution of economic output. Opportunity Cost – Next best foregone alternative (what you could have had vs. what you have now). Unfunded Liability – Difference of future revenues and future costs. At the Margin – Making rational decisions in incremental units. People respond to incentives – Decisions are made in reaction to incentives by weighing marginal costs with marginal benefits. Trade makes people better off – Trade allows for specialization in what entities do best and for a wider breadth of goods and services. One of the common forms of such a trade is in the corporate world, where labor is traded for money. Outsourcing – The procuring of services or products from an outside supplier or manufacturer in order to cut costs (also a tradeoff between corporations and their employees). Market Economy – Economy that uses markets to allocate resources. Economic activity is most efficiently organized through markets. Market Failure – Market that can’t allocate “economically efficient” resources. Governments can sometimes improve market outcomes by promoting market efficiency and equity (e.g. subsidies). Market Power – Power of money in the market.
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Our economic standard of living determines how much we produce. The United States is the #1 producer currently in the world. Income – Amount workers are paid for their labor. 10/7/04 Microeconomics Review Market – Any social device where buyers and sellers convene to transact goods and services among each other. Competitive Market – Market in which there are so many buyers/sellers that no one buyer or seller can substantially affect the market. Price Takers – The concept that buyers/sellers must accept the price the market determines (usu. in a perfectly competitive market).
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