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ECON200'Class'Notes''Macro'–'study'of'economy6wide'phenomena,'including'inflation,'unemployment,'and'economic'growth'Ex:'Decisions'made'by'the'president;'ensure'that'the'country'produces'“more,”'keep'employment'rate'up,'and'maintain'the'stability'of'prices''Micro'–'study'of'how'households'and'firms'make'decisions'and'how'they'interact'in'markets.'Attempting'to'figure'out'which'decisions'as'individuals'need'to'be'made'and'how'to'do'so.'Goal:'maximize'profits;'take'in'goods'and'services''Ex:'Georgetown'cupcakes'giving'away'free'cupcakes'to'build'clientele''Resources:'Factors'of'Production'1'–'Land'2'–'Labor'(skills)'3'–'Capital'(tools'used'to'produce'more'goods;'scissors,'hammers,'pencils)''*Need'these'to'produce'goods'and'maintain'services.'Usually'scarce;'always'in'need'of'more.'''Assumptions'and'Models:'6'Assumptions'simplify'the'complex'world,'making'it'easier'to'understand'Ex:'When'studying'international'trade'we'might'assume'the'world'consists'of'two'countries'and'two'goods.''6'Models:'road'map,'human'body''The'Economist'as'a'Policy'Advisor:''6'Normative4Statements'' 6'Attempt'to'describe'how'world'should'be.'Attempting'to'believe'' 6'Example:'A'tax'cut'is'needed'to'stimulate'the'economy''6'Positive4Statements'6''Can'be'confirmed'or'refuted,'unlike'normative'statements.'Creates'relationships,'“checks'it'out,”''uses'data.''' 6'Example:'Prices'rise'when'the'government'increases'the'quantity'of'the'dollar.'''Circular4Flow4Diagram:46'Visual'model'of'the'economy,'shows'how'dollars'flow'through'markets'amount'households'(type1)'and'firms'(type'2)'6'2'Markets:''' 6'Goods/Services'' 6'Factors'of'Production''OUTPUT'–'quantity'of'goods'or'services'produced'in'a'given'time'period'by'a'firm,'industry,'or'country'INPUT'–'factors'of'production:'land,'labor,'capital''9/7/10'Production4Possibilities4Frontier4(PPF):'6'A'graph'that'shows'the'combinations'of'two'goods'the'economy'can'possibly'produce'given'the'available'resources'and'the'available'technology'6'Produce'more'output'by'obtaining'more'resources'or'by'receiving'better'technology'6'Moving'along'PPF'involves'shifting'resources'(like'labor)'from'the'production'of'one'good'to'the'production'of'the'other'6'Society'faces'a'tradeoff.'Getting'more'of'one'good'involves'sacrificing'some'of'the'other'6'The4slope4of4the4PPF4tells4you4the4opportunity4cost4of4one4good4over4the4other''' '(Y26Y1)/(X26X1)''' '“rise'over'run”'or'the'amount'the'line'rises'when'you'move'to'the'right'by'one'unit.''6'Economic4Growth:'producing'more'of'both'goods;'need'more'resources'or'better'technology.'To'show'economic'growth'on'PPF,'slope'becomes'less'steep'as'more'of'each'good'is'produce''6'PPF'could'be'a'straight'line'or'a'bow6shaped'curve''6'Depends'what'happens'to'opportunity'cost'as'economy'shifts'resources'from'one'industry'to'the'other'' 6'If'opportunity'cost'remains'constant,'then'PPF'is'a'straight'line.''' 6'Usually'a'bow'shaped'curve'in'reality'because'opportunity'cost'increases'as'you'produce'a'good''6'PPF'is'bow6shaped'when'different'workers'have'different'skills,'therefore'there'are'different'opportunity'costs'of'producing'one'good'in'terms'of'the'other.''6'PPF'would'also'be'bow6shaped'when'there'is'some'other'resource,'or'a'mix'of'resources,'with'varying'opportunity'costs'' 6'ex:'different'types'of'land'suited'for'different'uses''9/9/10'Markets'&'Competition:'Market:'a'group'of'buyers'and'sellers'of'a'particu lar'product'(1'product'being'bought'and'sold' t hat'buyers'&'sellers'are'attempting'to'get)''Competitive4Market:'market'with'many'buyers'and'sellers,'each'has'no'control'over'price,'only'one'type'of'good'being'considered''Non6Competitive:'Cut'back'on'supply'or'increase'supply'depending'on'how'they'want'the'price'to'change.'Market'for'oil''Demand:'comes'from'the'behavior'of'buyers'• on'a'graph'price'will'always'be'on'the'vertical'axes'and'quantity'will'be'on'the'horizontal'one'• all'demand'curves'have'a'negative'slope''Law4of4Demand:'As'the'price'increases,'demand'decreases'and'vise'versa'(downward'slope)'Quantity4Demanded:'the'amount'of'the'good'that'buyers'are'willing'and'able'to'purchase'at'alternative'prices;'only'changes'when'the'prices.change.'Movement'along'the'curve;'reflects'law'of'demand.'Change4in4Demand:'shift'off'of'the'demand'curve'(expresses'the'relationship'btwn'the'quantity'demanded'and'the'price'of'the'good).'Right'='increase;'Left'='decrease.'Change'in'demand.shifters.''' 'Demand/Curve'Shifters:'6 Number4of4Buyers:'as'#'of'buyers'increase,'the'quantity'demanded'at'each'price'increases,'but'price'does'not'so'there'is'a'change'in'demand'and'curve'shifts'to'the'right.''6 Income:'Higher'the'income,'the'higher'the'demand'curve'4 Normal4Goods4vs.4Inferior4Goods:4income'increases,'so'does'demand'for'normal'goods'while'inferior'demand'decreases.'46 Price4of4Related4Goods:4two'goods'are'substitutes4if'an'increase'in'the'price'of'one'good'causes'an'increase'in'the'demand'for'another'good.'Two'goods'are'complements'if'an'increase'in'the'price'of'one'good'causes'a'fall'in'the'demand'for'another'good.'4 Price'of'latte'is'too'high,'so'people'switch'to'cappuccino''substitute4 Price'of'computers'increases,'so'software'demand'decreases'complement4 Price'of'beer'increases,'so'the'supply'of'pizza'remains'the'same.'Less'people'buying'beer,'so'less'people'buying'pizza.'Only'thing'that'changes'is'the'equilibrium'price.'46 Taste:4Anything'that'causes'shift'in'tastes'toward'a'good'will'increase'demand'for'that'good'and'shift'its'curve'to'the'right.4 Atkins'diet'caused'an'increase'in'demand'for'eggs,'so'the'demand'for'carbs'went'down4 Can'also'be'taste'in'technology:'ipad'comes'out'and'demand'for'other'things'goes'down46 Expectations:4Change'in'price'in'the'future;'can'either'increase'or'decrease'demand.'Changes'consumer’s'buying'decisions' If'people'expect'their'incomes'to'rise,'their'demands'for'meals'at'expensive'restaurants'may'increase.''Demand4Schedule:'a'table'that'shows'the' rel ationship'between'the'price'of'a'good'and'the'quantity'demanded'''Market4Demand4versus4Individual4Demand:'the'quantity'demanded'in'the'market'is'the'sum'of'the'quantities'demanded'by'all'individual'buyers'at'per'price.'(per'price'being'that'each'price'has'a'different'market'demand)''6


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UMD ECON 200 - Class Notes

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