Unit 1 Notes

I.                   Macroeconomics - a study of major components of an economy

-      Inflation, GDP, unemployment, supply/demand

Microeconomics - a study of how households/firms make decisions and interact in markets

-      supply/demand, market structures

-      Positive - one which attempts to describe the world as it is

o     Minimum wage cause unemployment

-      Normative - attempts to tell how the world should be

o   Government should raise minimum wage

II.                Wants vs. Shortage

Wants - desires of citizens; are broader than needs

Needs - what is necessary for survival 

III.             Scarcity vs. Shortage

-      Scarcity - basic fundamental economic problem that all society’s face (wants>needs)

-      Shortage – Demand is > quantity

IV.             Goods vs. Services

-      Goods - tangible commodities 

o   Consumer - goods intended final use by the consumer

o   Capital - items used in creation of other goods

§   machinery, trucks

-      Services - work performed for someone else 

V.                Factors of Production

1.      Land

2.      Labor

3.      Capital

4.      Entrepreneurship

-      Opportunity Cost- The most desirable alternative given up by making a decision 

-      Product Possibilities Graph (PPG) - shows alternative ways to use resources.

-      Product Efficiency- Producing at the lowest cost, allocating resources efficiently, full employment of resources (any point on the curve)

-      Allocative Efficiency- Combination that is most desired by society where to produce on the curve