Key points

Key points - H.W 1 KEY POINTS This assignment deals with...

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H.W. 1 KEY POINTS This assignment deals with the basic issues of economics and macroeconomics. There is a lot of detail in the assigned chapters, particularly in chapter 4. We are just focusing on introducing a lot of the terms and concepts at this stage, so don’t get bogged down. After doing the chapter readings you should understand the following: • The definitions of economics, microeconomics and macroeconomics • The what, how, who questions and the invisible hand and how markets answer these questions • Marginal and Opportunity cost • Economic Methodology • How to read and sketch simple graphs and how to interpret slopes • What firms, markets, property rights, money are and how they are involved in the economy • The basic issues that macroeconomics deals with (note that we will do less than is in the text at this point): o Determinants of output, unemployment, inflation, fiscal and monetary policy and economic growth o Difference between short-run and long-run macro o The Keynesian and Classical approaches o Know a bit about the great depression H.W. 2 KEY POINTS: • Importance of the concept of the invisible hand – basis for belief in ‘free-market’ capitalism in which individual self-interest (greed), coming together in a competitive market place, leads to an socially efficient outcome as though ‘guided by the invisible hand of providence’ o Note – this indicates that market economies are efficient but not necessarily equitable (fair) • Measuring and determining the value of anything – by its market price determined by supply (reflecting costs and scarcity) and demand (reflecting tastes). • Capitalism versus Socialism – individual and market determined outcomes versus government planning. • Supply and Demand - Micro o Changes in quantity demanded (which is a movement along a given demand curve) versus change in demand (which is a shift in the whole curve) Demand refers to the whole relation between price and the quantities people would be willing and able to buy – the whole curve. A change in demand means the whole curve shifts, due to a change in income, tastes, or the prices of other relevant goods (substitutes or complements). • Don’t worry about normal and inferior goods much, nor about complements and substitutes Quantity Demanded refers to a specific quantity that people would be willing and able to buy at a given price – a point on a given demand curve. A change in the quantity demanded is caused ONLY by a change in price (which can only be caused by a shift in SUPPLY)
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The same definitions hold for Supply and quantity supplied, except that the Supply curve shifts (a change in supply) when costs of production change. o Meaning and determination of equilibrium – market equilibrium occurs where the D curve
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Key points - H.W 1 KEY POINTS This assignment deals with...

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