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Macro-Econ Chapter 1 Notes

by: Reyana Brown

Macro-Econ Chapter 1 Notes ECON 2133

Marketplace > East Carolina University > Economcs > ECON 2133 > Macro Econ Chapter 1 Notes
Reyana Brown
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About this Document

These notes cover Chapter 1 topics
Nehad Elsawaf
Class Notes




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This 2 page Class Notes was uploaded by Reyana Brown on Thursday January 28, 2016. The Class Notes belongs to ECON 2133 at East Carolina University taught by Nehad Elsawaf in Spring 2016. Since its upload, it has received 55 views. For similar materials see Macroeconomics in Economcs at East Carolina University.


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Date Created: 01/28/16
Macro-Economics Chapter 1 Topics Covered: • Ten Basic Principles of Economics • Definition of Economics What is Economics? Economics is the concept of decision making within a society by managing their resources Examples: • How a business decides what to produce • How a society divides up resources dependent on what the society needs Scarcity: limited resources in a society There are 3 Basic Questions when it comes to the Economy 1. How do people make decisions? (principles 1-4) 2. How do people interact within a society? (principles 5-7) 3. How does the economy work as a whole? (principles 8-10) Ten Basic Principles Principle #1: People encounter tradeoffs in decision making • The big decision a society has to face is differentiating whether efficiency or equality is the best choice for their society • Efficiency: when a society can get the most from its resources • Equality: when the success of the society is uniformly distributed amongst its members Principle #2: The cost of something is whatever you're willing to give up to get it • Opportunity Cost: whatever an individual is willing to give up in order to obtain what they desire • The cost of something is not just the money that could be made. It could be something less tangible Principle #3: Rational people think at the border of constraints to maximize their profit • Rational People: people who critically think and do the best that they can in order to achieve their wants • Margin: restrictions set on maximizing profits • Marginal Changes: adjustments made to an existing agreement • Arational person will only act on a decision if the MB > MC (Marginal Benefit; Marginal Cost) Principle #4: People respond to the benefits of certain decisions • Incentive: a result of a decision that motivates a person to act Incentives can be key to see how the economy runs • Principle #5: Trade can result in benefits for everyone • With trade countries can share what they specialize so that everyone gets to maximize the all goods and services Principle #6: Markets can potentially organize activity within a market • Market: group of people who purchase and sell supplies Market Economy:An economy that bases its decisions based on supply and demand of a • good or service • Adam Smith created the metaphor of the invisible hand which represents all the benefits from actions that were not thought of Principle #7: The outcome of a market can potentially be improved with government interventions • Market Failure: when resources aren’t distributed efficiently What are the causes of a market failure? • • Externalities: when bystanders are affected by a good • Market Power: when the market price is influenced by one buyer or seller • Equity can come out of government intervention Principle #8: The ability to produce goods and services determines a living standards of a country • Productivity: amount produced in a certain period of time Principle #9: Too much money produced results in prices rising • Inflation: rise in prices • Faster money produced -> greater inflation rate Principle #10: Inflation and unemployment create a small trade-off within a society • For 1-2 years inflation and unemployment are treated separately


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