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Principles of Macroeconomics, Week 1

by: Gianni Stennis

Principles of Macroeconomics, Week 1 EC 2113

Marketplace > Mississippi State University > Macro Economics > EC 2113 > Principles of Macroeconomics Week 1
Gianni Stennis
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About this Document

These notes cover early concepts of macroeconomics, such as scarcity, self-interest, opportunity cost, marginal analysis, the distinction between macroeconomics and microeconomics, positive and nor...
Principals of Macroeconomics
Heriberto Gonzalez Lozano
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This 4 page Class Notes was uploaded by Gianni Stennis on Wednesday August 24, 2016. The Class Notes belongs to EC 2113 at Mississippi State University taught by Heriberto Gonzalez Lozano in Fall 2016. Since its upload, it has received 13 views. For similar materials see Principals of Macroeconomics in Macro Economics at Mississippi State University.


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Date Created: 08/24/16
EC­2113 Chapter 1: Limits, Alternatives, and Choices Economics A social science concerned with making optimal choices under conditions of scarcity   (unlimited wants > limited resources = scarcity) Everyone faces scarcity (individuals, organizations, countries, societies) Economic wants exceed society’s productive capacity Scarcity and Choice  Resources are scarce  Choices must be made  Opportunity cost ­ the decision to engage in one activity means forgoing some other  activity  There’s no free lunch The Economic Perspective  Economic perspective o Scarcity and choice o Opportunity cost o Purposeful behavior to increase utility o Marginal analysis Purposeful Behavior    Rational self­interest o People strive to achieve personal satisfaction (utility) o Self­interest doesn’t equal selfishness o Individuals and utility o Firms and profit o Desired outcome Individuals maximize utility Firms maximize profits People make decisions with some desired outcome in mind Rational decisions = decisions that will make people better off, not worse off. Marginal Analysis Marginal analysis o Marginal means “extra” o Marginal Benefit (MB) vs Marginal Cost (MC) “That’s not worth it,”  MC > MB Theories, Principles, and Models The scientific method (observe  formulate a hypothesis  test the hypothesis  accept,  reject, or modify the hypothesis  continue to test the hypothesis, if necessary) Economic Principle Generalizations Other­things­equal assumption o Ceteris paribus Graphical expression Micro and Macro  Microeconomics o The study of the individual consumer, firm, or market  Macroeconomics  o The study of the entire economy or a major aggregate of the economy Positive and Normative Economics Positive economics o Economic statements that are factual Normative economics o Economic statements that involve value judgements Positive statements can be confirmed or refuted, normative statements cannot.\ The Economizing Problem The economizing problem Limited income and unlimited wants The budget line Attainable and unattainable combinations Trade­offs and opportunity costs  Society’s Economizing Problem 4 categories of economic resources Land Labor Capital o Investment Entrepreneurial ability Production Possibilities Model Economic model that shows different combinations of two goods that and economy can  produce Full employment  Fixed resources Fixed technology 2­good economy Consumer goods and capital goods Increasing Opportunity Costs Law of increasing opportunity costs o As more of a particular good is produced, its marginal opportunity costs increase Production possibilities curve o Concave shape Economic rationale International Trade Specialization Increased production possibilities Pitfalls to Sound Economic Reasoning Biases Fallacy of composition Post hoc fallacy o Correlation not causation


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