Econ 201 ECON 201 Macro Economics
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This 3 page Class Notes was uploaded by Courtney Finnigan on Wednesday January 20, 2016. The Class Notes belongs to ECON 201 Macro Economics at University of Washington taught by Dennis O'Dea in Fall 2015. Since its upload, it has received 63 views. For similar materials see Introduction to Macroeconomics in Economcs at University of Washington.
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Date Created: 01/20/16
Econ 201 Lecture Notes Lecture 1 (Chapters 13) ● Economics: Choice among limited options ○ Micro: Individual Choice ○ Macro: “Social Choices” aggregate choices (government) ● Principles of Individual Choice: ○ Scarce Resources ■ Land, labor, time, physical capital, human capital ● Everything has anopportunity cost ○ What would you be doing if you were not here right now? ○ Foregone wages and fun ● Costs mean everything is a tradeoff ○ More of this, less of that ● There are gains from trade ○ If I have what you want, we can BOTH be better off ○ If we specialize, we can produce more ● Markets move towards equilibrium ○ Markets settle down around stable outcomes ○ Resources should be used efficiently (not wasteful) ■ No wasted opportunities, nothing to do with fairness Principles of Interaction 1. There are no gains from trade 2. Markets move toward equilibrium 3. Resources should be used more efficiently 4. Competitive markets are (usually) efficient 5. When they aren’t, governments can help a. Roads, education, health care Principles of EconomyWide Interactions 1. One person’s spending is another’s income 2. Spending isn’t always equal to productive capacity a. Sometimes resources sit idle! 3. Government can affect spending a. Direct spending b. tax cuts, incentives Models in Economics: ● Simplified version of reality ● Ignores many things to focus on some things ● Helps to clarify our thinking ● Relies on Ceteris Paribus assumption ○ All else equal ○ Assume that everything not in the model stays unchanged Circular Flow Diagram ● Ultimately, factor markets determine the economy’s income distribution ○ Spells out who trades with who, for what ○ Not too much detail ● What’s not there? ○ Banks ○ Federal reserves ○ Transactions between firms ○ Distribution of wealth TradeOffs: The Production Possibility Frontier (PPF) ● Illustrates the tradeoffs facing an economy that produces only two goods ● It shows the maximum quantity of one good that can be produced for any given production of the other good ● Improves our understanding of tradeoffs Lecture 2 How economists use models: ● Positive economists: branch of economic analysis that describes the way the economy ACTUALLY works ● Normative economists: makes prescriptions about the way the economy SHOULD work ● A forecast is a simple prediction of the future Supply and Demand: ● Market: ● Trade in some single, welldefined good ● Specific time and date of delivery (a car today and a car in 6 months are two different goods) ● Free voluntary exchange ● Competitive markets ○ Many potential buyers and sellers ○ A “big” market ● “Perfect competition” ○ So many buyers and sellers that each individual, consumer or firm is so small they cannot affect the market as a whole ● Also a limited model ○ Just like every other model ● Moving parts of this model ○ Consumers (demand) ○ Firms (represented by the supply curve) ● Add all of this up: Market Demand Curve A demand schedule shows how much of a good or service consumers will want to buy at different prices. Demand curve: what happens when the P changes ● Slide along the curve If anything else changes, we need a whole new curve ● At each P, Q will be different ● Ceteris Paribus ● A shift of the whole curve Supply Curve: relationship between a firm’s willingness to sell and price ● Ceteris Paribus ● Everything that isn’t the price, but matters to the firm
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