Lecture 1 intro company i e looking for a job Macro Economics studies market forces beyond the control of any one person family or first key idea society has scarce resources macro factors lots of offers on only a few is pay high or low management of society s resources important because resources are scarce Scarcity society has limited resources and therefore can t produce all goods services people wish to have Five key ideas in macroecon Incentives Money Scarcity Interconnections Non zero sum games Two types of incentives Positive when you are rewarded for doing a particular action Negative when a particular action results in punishment Right incentives improve econ conditions Wrong incentives can destroy a country Key idea money is important Money is a big incentive obtain it Money is magical Money is very powerful and people will lie cheat and steal to It allows society to produce much more than barter w barter need double coincidence Money eliminates double coincidence problem Reduced time to trade means more time to produce Money is a signal of quality and a measuring stick Key idea interconnections Scarcity at any moment in time needs and desires are greater than available resources Entire world economically connected Each of our decisions affect econ world slightly Macroecon is not a zero sum game Financial markets key part of macro are non zero sum games Markets rise and fall wealth created and destroyed Adam smith Father of economics Wrote wealth of nations first economic book Showed that individuals are constantly seeking to improve their own situation in life Lecture 2 intro II Everything a country produces is divided by economists into two categories Goods something that can be resold Services makes no sense in terms of reselling Positive statements provide an objective view of the world Are factual but not all factual statements are correct Normative statements based on values and personal judgment and describe how the world should be Are value judgments and your values may or may not be right correspond with who you re talking to Successful businesses consistently make money without breaking implicit and explicit laws social agreements Price determined by company but value managers pick is influenced by inflation Quantity sold impacted by macro variables consumer confidence income wealth foreign exchange rate Costs dependent on micro decisions i e technology used to produce goods But are also influenced by macro factors interest rates wage rates Not all businesses try to maximize profits Personal enrichment influence direction of new technologies Political and economic systems are not tied together 3 common economic systems Capitalist individuals own the country s businesses Advantage most incentives to work hard and create businesses Socialist gov t owns most important businesses in key sectors banks airlines and individuals own businesses in less important and more competitive areas Hybrid of capitalist and communist advantages Communist entire community or country owns all businesses and individuals own none Output distributed in most equal manner No concern about class struggles between rich and poor Key difference in political systems how much say an individual has in gov t decisions 3 most useful resources CIA World Factbook useful for providing quick overview of a country World Bank s World Development Indicators useful for comparing major macroecon indicators from 1960 to present Country specific statistical compendium Typical country spends 2 of GDP on military U S spends over 4 Lecture 3 Supply and Demand Oil use in 4 key areas b c of importance of fuel changes in world price of oil can lead to econ recessions and expansions petroleum usage climbing each year by 1 2 million barrels per day Demand not solely based on wants but also ability to purchase Law of demand the higher the price for something the less people want to buy when all other factors are held constanst Substitution effect if price goes up for a product people purchase the substitute Income effect what happens when your income goes up When price of item goes down you can buy same quantity as before but have money leftover same as having more income Two types of auctions English price rises until only one bidder left useful for creating demand curve curve Dutch price falls until one bidder enters not useful for creating demand Raises in taxes causes consumers to have less money to spend and a demand curve shift left and downward Short run period of time during which firms don t have time to change plant size and consumers do not have ability to change their lives Long run period of time during which firms have enough time to change plant size and consumers can make big lifestyle changes Supply and demand more elastic in long run Cheapest places in world to buy gasoline are in oil producing countries Iran Saudia Arabia Kuwait Indonesia Gasoline in Iran almost free Causes problems when products are very cheap there is huge economic demand and no incentive to economize usage huge shortage Can cause problem by rationing gasoline raising price only supply certain gas stations with gas Alfred Marshall famous economist On his S D graphs he put price what economists today consider the independent variable on the y axis Put quantity dependent variable on the horizontal x axis Energy prices have important impact one conomy To analyze how events influence markets key tool is S D diagram In most cases prices causes change in quantity Lecture 4 World s Population one of world s scarcest resources land Rwandan Genocide days Thomas Malthus Between arpil and June 1994 estimated 800 000 rwandans killed in 100 Most dead were tutsis hutus were the violent ones Participants given incentives of money and food and sometimes land His theory of population proposed natural limiting factors which put an upper bound in the number of people i e food Noted that population grows exponentially Natural resources grow arithmetically if at all When country needs more resources than available to survive it has reached its carrying capacity Anything beyond carrying capacity causes famine and wars Population growth is kept in check by death Wrote anonymously because beforehand people believed fertility increased national wealth Also discouraged charity and started ideas about controlling number of children from poor parents Jared Diamond Says societies that collapse go through following steps Population grows to much Farms