Class Notes:Chapter 2:A.Microeconomics: study of individual units that make up the economya.Micro choices: times, groceriesB.Macroeconomics: study of overall economya.Macro choices: healthcare, educationC.Trade = voluntary exchangea.Trade helps both sidesb.Trade creates valuec.Trade is a positive-sum gamed.Differences are helpfulD.Scarcity → Choices → Tradeoffsa.Thomas Sowell: A Conflict of Visionsi.Unconstrained vs constrainedii.Unconstrained vision: we have the resources necessary to satisfy everyoneiii.Constrained vision: we have limited resources and unlimited desiresb.Scarcity: society’s resources are limited, fall short of wants/desiresc.Resources:1.Land: natural resources2.Labor: workers and their skills3.Capital: toolsE.Opportunity cost: highest valued foregone alternativeF.Trade Creates value (PPF)Ch. 3, Incentives Affect Behavior, GDP - 3%Three fundamental Questions:1. What will be produced?2. How will it be produced?3. For whom will it be produced?A.Markets: individuals choose ←-------------------------------------→ socialism: central planningB.Demand: the buying/consuming side of the marketa.Factors that influence D:1.(-) Price:a.Law of demand: all else equal, Qd falls when price rises & vvb.Movement ALONG2.(+) Consumer income (normal vs inferior)3.(+) Price Expectations (when expect higher p in future, buy more now)4.(+/-) Tastes and Preferences5.(-) TaxesC. Supplya.Factors that influence S:
1.(+) Price:a.Law of supply: all else equal, Qs rises when price rises, & vvb.Movement ALONG2.(-) Cost of inputs/resources3.(+) Technology4.(-) Price Expectations5.(-) TaxesD.Market Equilibrium: when plans of buyers match plans of sellers, Qs = Qda.If P > P* Qs > Qd = surplusb.If P < P* Qs < Qd = shortageE.Why do gas prices usually rise mid-year: increase in tastes/prefs as weather warms upF.What happens to the price of gasoline when crude oil prices fall? Input cost down, so supply shifts out so P down and Q upII. The Market SystemA.Markets: bring buyers and sellers together for exchangeB.Market system: an economy based on voluntary exchange via markets for individuals goods and servicesC.PRICES ARE SIGNALSa.Earthquake reduces supply of key resources: supply shifts back, people use lessb.New use for a commodity: firms up commodity outputD.Adam Smith (1776): The Wealth of Nationsa.Real GDP up 1.9% after fourth quarter of 2016, avg: 3%Ch. 6 GDPIII. GDP IntroA.National Income AccountingB.GDP: gross domestic product: the market value of final goods and services produced in a country in a yeara.Market value: used to add different goods, look at price, mkt value = Q*Pb.