Week 1 lecture notes - Macroeconomics
Week 1 lecture notes - Macroeconomics ECON 2105 080
Popular in PRINCIPLES OF MACROECONOMICS
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This 8 page Class Notes was uploaded by Gunawork on Saturday August 29, 2015. The Class Notes belongs to ECON 2105 080 at Georgia State University taught by Brian Hunt in Fall 2015. Since its upload, it has received 101 views. For similar materials see PRINCIPLES OF MACROECONOMICS in Economcs at Georgia State University.
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Date Created: 08/29/15
MacroEcon 2105 Week 1 Lecture Notes How individuals make choices Basic principles behind the individual choices 1 Resources are scarce 2 The real cost of something is what you must give up to get it Opportunity cost It is all about what you have to forgo to obtain your choice How much is a decision at the margin Tradeoffs Marginal decisions and marginal analysis VVP People usually take advantage of opportunities to make themselves better off Incentives V Allocate Choices Cost What is the opportunity cost Market choice Market system Innovation and productivity Scarce of Oil Resources 2006 Since 2006 from what you know how has the scarcity of global oil resources changed Using the concept of opportunity cost consider reasons why we would never run out of oil Scarcity and exploiting opportunities The picture below shows the traf c congestions entering critical marketplaces in Lagos l geria is what type of scarcity A Of the type of scarcity created what type of opportunities emerge that are being or are potentially being exploited in the picture Before organizing a market there are some important questions to ask rst What will be produced How will it be produced Who will produce it For whom will it be produced How these A questions are answered in the private and public domain will shape responses to newer questions that often dominate the politicaleconomy debate Economic systems and the management of choice How do each of the tcaptype of economic systems manage choices in their respective market environments constrained by scarce resources and scarce opportunities How might each of theses systems differ in managing the tradeoffs between ef ciency and equity Choice gt customs gt traditional economy Choice gt consumers and producers gt free market capitalist Choice gt government gt planned socialist Choice gt consumers producers and government gt mixed economy The function of markets in principles Without dividing into the politicized discussion of private versus public economies a mixed marketplace should function along 4 tenets 1 Serve as a medium to coordinate activities in response to private and public incentives signaling unlimited needs and wants in a resource constrained environment 2 Serve as a medium for the allocation of scarce resources through the use of pricing mechanism regulated or nonregulated or adoption of some acceptable private and or public practice 3 Making use of a pricing mechanism for the allocation of scarce resources or adoption of some type of acceptable private or public practice for the allocation of resources land labor and capital to persons or entities that will make for the most productive use of such resources 4 Create exploitable trade and exchange opportunities for participants that will maximize private and public gains and returns to society CFI model closed economy Factor Payments Income Payments Taxes Government 0 TaxesQ Payments Interest and S39es dividends Loans Financial Institutions sewngs Sales Recei pm Consumption Expenditure Circular flow model of loanable funds BorrowerSpenders 1 Business firms 2 Government 3 Households 4 Foreigners Quantity of coconuts 35 3O 25 20 15 10 Quantity of coconuts 35 3O 25 20 15 10 Tom s tradeoffs the production possibility frontier Feasible and Not feasible effucnent Feasible but not efficient Production possibility frontier PPF I 40 50 Quantity of fish 10 20 30 Increasing opportunity cost requires giving up 5 coconuts Producing the first 20th But producing 20 more fish I a o o o o o I o u o I o o o r requires giving up 25 more coconuts PPF I 50 Quantity of fish 10 20 3O 4O Economic growth Quantity of coconuts 35 3O 25 20 15 1O 3 3 Original New I i i I PPF PPF O 1 O 20 25 3O 4O 50 Quantity of fish Comparative advantages and gains from trade eX Tom and Hank a Tom s Production Possibilities Quantity of coconuts 30 Tom s consumption without trade 9 Tom s PPF O 28 40 Quantity of fish b Hank s Production Possibilities Quantity of coconuts 20 Hank s consumption without trade 8 Hanks PPF O 6 10 Quantity of fish Tom and Hank s opportunity costs of sh and coconuts Both castaways are better off when they each specialize in What they are good at and trade Specialize and trade a Tom s Production and Consumption Quantity of coconuts 30 Tom s consumption without trade Tom39s consumption with trade Tom s 1O production 9 O O o o o o o O o o O o o o o o o with trade i O 28 3O 40 Quantity of fish b Hank s Production and Consumption Quantity of coconuts Hank s production with trade 20 Hank s consumption with trade 10 8 Hank s consumption without trade 0 6 1 0 Quantity of fish Without Trade With Trade Gains from Trade Production Consumption Production Consumption Tom Fish 28 28 40 30 2 Coconuts 9 9 0 10 1 Hank Fish 6 6 0 10 4 Coconuts 8 8 20 10 2 Comparative vs absolute advantage gt Comparative advantage the opportunity cost of producing the good is lower for that individual than for other people gt Absolute advantage if he or she can do it better than other people Careful DON T confuse comparative advantage with absolute advantage
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