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Chapter 1 Notes

by: Caitlyn Myers

Chapter 1 Notes EC 309

Caitlyn Myers
GPA 3.35
Intermediate Macroeconomics
Daniel Otto

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About this Document

This is the full notes for Ch. 1 in Daniel Otto's Intermediate Macro class.
Intermediate Macroeconomics
Daniel Otto
Class Notes
25 ?




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This 2 page Class Notes was uploaded by Caitlyn Myers on Friday January 16, 2015. The Class Notes belongs to EC 309 at University of Alabama - Tuscaloosa taught by Daniel Otto in Spring2015. Since its upload, it has received 143 views. For similar materials see Intermediate Macroeconomics in Economcs at University of Alabama - Tuscaloosa.

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Date Created: 01/16/15
Econ 309 Chapter 1 Theorv of Modeling 0 There are two kinds of variables 0 Endogenous variables the model trys to explain 0 Exogenous variables the model takes as given 0 The purpose of a model is to show how the exogenous variables effect the endogenous variables Exodenous variables come from outside the model and serve as the models input whereas endogenous variables are determined within the model and are the models output Model of SUDDIV and Demand 0 Quantity demandedDPY o D is the demand function price of the good and consumers income SP Pm o S is the supply function price of the good and price it costs to make good Endogenous variables price and quantity exchanged Exogenous variables Y amp Pm income and price of inputs cost of materials QdQs lmarket clearing Like all models the model for the pizza market makes some simlifying assumptions 0 The art of economics lies in judging when a simplifying assumption clari es our thinking when it misleads us Prices Flexible vs Sticky As economists we normally assume that markets are in equilibrium This the price is found at the intersection of the supply and demand curves 0 This assumption is called market clearing 0 Market clearing models assume that all wages and prices are exible however in reality some are sticky Stickytakes time to adjust things 0 Market clearing is a good assumption in the longrun 0 Price stickiness is a better assumption in the shortrun Microeconomic Thinking in Macroeconomic Models 0 In microeconomic models households choose their purchases to maximize utility and rms make production decisions to maximize profits 0 Although microeconomic decisions underline macroeconomic phenomena macroeconomic models do not necessairly focus on the optimizing behavior of households and rms 0 This behavior is sometimes left in the background


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