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Econ 6 week notes

by: Emma

Econ 6 week notes Econ 211-005


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About this Document

These notes cover up to 6 weeks of classes
Principles of macroeconomics
Dr. Mann
Class Notes
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This 5 page Class Notes was uploaded by Emma on Thursday October 13, 2016. The Class Notes belongs to Econ 211-005 at University of Nebraska Lincoln taught by Dr. Mann in Fall 2016. Since its upload, it has received 3 views.


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Date Created: 10/13/16
9/12/2016 Demand Which factors influence whether or not a consumer is willing and able to purchase a good or service? Price, income, price of other goods, tastes, expectations of future income/price. Price links both sides of the market. Demand side and supply side Law of Demand: as the price of a good, service or resource rises the quantity demanded will fall. All else is held constant. P^=Qd decreases (Qd- quantity demanded) Price and quantity are inversely related. Demand curves are always going to be downward sloping. Why do demand curves slope down? Diminishing marginal utility (satisfaction): as people consume more of a good during a fixed time period, the satisfaction received from each additional unit falls. Income effect: lower prices= higher purchasing power of income Substitution effect: when the price of a good becomes higher, consumers are more likely to search for a substitute. Change in price results in a shift along the demand curve. Any time there’s a change in the price of a good it causes movement along the demand curve. “Change in quantity demanded” A change in any other factor that influences consumers causes a shift in the demand curve. (Moves up and down.) When more people in the market are willing to buy. Quantity demanded increases at every price point. “increase in demand.” Does demand rise or fall when incomes rise? Depends on good type. 1) Normal goods ( get richer maybe might buy more) 2) Inferior goods (not mean worse just infers to how people respond to when their incomes change) Normal goods When income increases demand rises Results in a shift right of the demand curve Ex: steak, cars, houses, trips, clothing. Inferior goods When income rises, demand falls Results in shift left of demand curve Ex: ramen noodles, bus rides, trailers. Marginal Analysis  Process of evaluating choices in increments  Marginal benefit-benefit of an additional unit  Marginal cost-cost of an additional unit Production possibilities Frontier  A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. Comparing Production possibilities  An individual has an absolute advantage if they can produce the good at a lower cost or using fewer inputs  An individual has a comparative advantage if they can produce the good at a lower opportunity cost (everyone has comparative advantage in one thing) Specialization  When people specialize in what they have a comparative advantage in producing, everyone can benefit from trade. Terms of trade  Def: the price of one good, service or resource in terms of another.  The terms of trade will is determined by the opportunity cost of producing each good for each country or group. What is Economics? Economics is the study of how individuals and societies allocate scare resources among many competing uses. Microeconomics: deals with individual households and specific markets. Macroeconomics: examines the entire economy of a state, country or world. Resources: Anything used to produce a good or service. Four factors of production. 1. Land 2. Labor 3. Capital 4. Entrepreneurship Land  Natural resources used to produce a good or service  Oil ( not renewable) Lumber (renewable) Labor  All physical & mental activity used in production (mental-human capital most countries have a high premium on education.) Capital  Physical capital- machines, tools, infrastructure  Human capital- knowledge, education, human experience.  Government plays crucial part in providing infrastructure Entrepreneurship  The talent or ability to combine land, labor & capital to produce goods and services. Circular flow diagram  A model that concisely describes how goods, services, resources, and money flow back and forth in an economy.  Types of economic agents: Households-demand goods, supply resources. Firms: supply goods, demand resources Implications of circular flow diagram  One person’s spending is another person’s income  The value of all resources is equal to the total value of production  Changes in standard of living Why do we make choices?  Because resources are scarce!  Not enough to satisfy unlimited wants of society. How do we make choices?  By comparing the benefits of an action with the costs  Net Benefit=total benefit-total cost Opportunity Costs  The value of the opportunity that you gave up to make the choice Rational Decision Making  A person is ‘rational’ if their choices maximize their net benefit Related goods and services  The demand for a product is influenced by the price of related goods and services.  Substitutes are goods and services that are viewed as replacements for one another  Complements are goods that are used or consumed with one another


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