UB ECO 181 - Final Exam Study Guide (73 pages)

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Final Exam Study Guide



Previewing pages 1, 2, 3, 4, 5, 34, 35, 36, 37, 38, 69, 70, 71, 72, 73 of actual document.

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Final Exam Study Guide

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Here is a Study Guide to help out for this upcoming Final Exam! Good Luck!


Pages:
73
Type:
Study Guide
School:
University at Buffalo, The State University of New York
Course:
Eco 181 - Intro to Macroeconomics
Intro to Macroeconomics Documents
Unformatted text preview:

ECO 181 1nd Edition Final Exam Study Guide Lectures 1 17 Chp 1 I Economics o Studies how society distributes and utilizes its scarce resources to its members in order to satisfy unlimited wants Resources o Anything used to produce goods and services o Four resources Labor human capital skills knowledge of labor Land natural Physical capital Capital people made goods and services used to make other goods and services Entrepreneurial ship Courage embodied in some workers that enables them to take risks to combine resources to produce goods and services What about money o Money is a medium of exchange but it is NOT a resource II Resources Resources are scarce when supply demand o Limited supply Land Labor Capital Entrepreneurship Limited resources and time o Unlimited demand Food Clothing Shelter Security Comfort Three basic questions that every society must answer o 1 What to produce Deals with how resources are allocated o 2 How Deals with production process o 3 For Whom Deals with distribution of goods and services Economy is the mechanism that allocates the scarce resources o o I Markets through price and wage adjustments II Government allocation Central planner o III Mixed Economies Both forms of allocation III Two Divisions of Economies I Microeconomics o Studies the individual components of an economy firms households and governments and how they interact II Macroeconomics o Studies the whole economy o Aggregate measures IV Three Steps of Macroeconomics I Understand the primary components of measuring the aggregate whole economy o Most important measure is GDP GDP measures income and production Unemployment inversely related to GDP Want low GDP and low inflation II Develop modes to understand how the economy works o Long run growth approx 3 2 each year annually over the last 100 years o SR fluctuations business cycle V Why cant we just study Microeconomics and apply it to the whole economy I The whole is greater than the sum of it s partso The combined effects of individual decisions can have a very different results than what the individuals had intended Ex The Paradox Of Thrift For individuals to increase future income you should save more However if everyone saves more this could reduce future income thus the paradox 2 Government policy is much less controversial in macroeconomics VI Economics is a Social Science They use the scientific method to study how society people government firms deals with scarcity VII Scientific method The dispassionate development and testing of theories about how the world works o Must be objective The key to the scientific method is that the researcher be objective VIII Assumptions Why must economists use assumptions o To simplify a very complex reality Common Assumptions Made by Economists o 1 Rationality Assumption People make choices to maximize self interest Implies that people respond to incentives and disincentives cost Ex people make choices by comparing benefits to cost Do people always behave rationally No but We will assume they are o 2 Ceteris Paribus Assumption Must assume that everything else is not changing being held constant IX Models A model is a simplified representation of reality o Sometimes simpler is better Once a model is developed how can economists test them o Can use experiments but still mostly use historical data X What do economists do I Scientists o As scientists economists make positive statements Objective statements that attempt to describe how the economy is II Policy Advisors o As policy advisors economists make Normative Statements Subjective statements that prescribe how the economy should be o Positive statements can be tested refuted or verified while normative statements cannot Chp 2 When societies are deciding how best to use their scarce resources they must consider the opportunity cost of using that resource I Opportunity Cost o The next best alternative that must be sacrificed to obtain something or to satisfy a want II Production Possibility Frontier Curve PPF PPC o Shows the different combinations of goods and services an economy can produce at a given time given the available resources and technology assuming that resources are fixed and fully utilized o Technology society s pool of knowledge Draw example from notes o In order to produce more chocolate we must produce fewer cans of cola This is due to scarcity Slope of curve is negative OC of 1st 10 chocolate bars is OC of 2nd 10 chocolate bars is OC of 3rd 10 chocolate bars is The OC of producing more Tablets is increasing This is because resources are specialized Better at producing some goods than others Slope of the curve is bowed out Increasing o The curve is bowed out because of increasing opportunity cost o PPF EXAMPLE Draw example from notes o OC of producing 1 000 bushels of wheat is Thus resources for producing computers and wheat are Summarize Points on the PPF like A E are efficient fully utilizing resources Points under the PPF like F are inefficient could simply be because economy is in a recession Points above the PPF like G are unattainable III Difference between moving to Efficiency vs Economic Growth Draw example from notes o o o o o X represents low demand slow economy high unemployment Moving from X to A B or C would result from economic recovery unemployment starts falling PPC curve would not shit Moving from A B or C to Y would result from economic growth shifting curve outward This would occur if there were more resources or technological innovation IV Trade off between present and future consumption o Suppose that goods produced by an economy can be broken down to either 1 Consumer Goods Goods produced for personal satisfaction Food clothing shelter basic necessities 2 Capital Goods Goods used to produce other goods Machinery equipment Draw example from notes If the economy were at point A there would be growth PPC unchanged If the economy was at point D If the economy were at point B with consumer goods and capital goods the curve would shift out o If the economy as at point C with consumer goods and capital goods then the curve would shit out more Thus producing more capital goods today result in fewer consumption goods today but more consumption goods in the future V Specialization o Comparative Advantage Occurs when a person or country can produce a good at the lowest opportunity cost Thus if a person or country has comparative advantage in the production of the food then they should specialize in the production of


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