lOMoARcPSD 46016802 Scan to open on Studocu Scan to open on Studocu ECON103 pt1 Semester 1 notes Vazquez notes ECON103 pt1 Semester 1 notes Vazquez notes Macroeconomic Principles University of Illinois at Urbana Champaign Macroeconomic Principles University of Illinois at Urbana Champaign Studocu is not sponsored or endorsed by any college or university Studocu is not sponsored or endorsed by any college or university Downloaded by Michael Urso murso0425 gmail com lOMoARcPSD 46016802 8 22 8 24 If a resource is limited there s more than one way to distribute Distribute based on chance need lottery etc We need economics because resources are scarce Not tradeable yet we can still distribute Not always about money No resource out there is unlimited Economics can be applied to everything Everything has a cost Creates competition incentives the person providing the service to give a good service Recession slow down of the US economy ppl lose jobs Over time CPI average prices in the US increased Inflation real problem in the US becomes a problem for the political party in power At a 40 year high main cause Supply problems due to covid democrats Greedy suppliers taking advantage of consumers radical Pent up demand as people came out of covid lock down republican Increase in government spending covid relief check extreme republican All of the above Are we headed to another recession GDP per capita US is significantly higher than China and Mali However China is growing faster than the US if they remain at the same pace eventually China will catch up KEY PRINCIPLES The Opportunity Cost principle Nothing is Free everything has a cost Impossible to have both working making money What you give up The value of the next best alternative ex watch lecture and watch movie quality of attention is sacrificed ex greatest cost of being in college opportunity of time that could be used to Downloaded by Michael Urso murso0425 gmail com lOMoARcPSD 46016802 John has 3 options going to the beach which he values at 80 washing his car which he values at 60 or going out with a friend which he values at 100 What is the opportunity cost of going out with a friend From the last exam answer 80 Net Marginal Benefits Principle actions People only take actions when the benefits of those actions outweigh the costs of those RATIONAL people ONLY take actions when net marginal benefits is POSITIVE The Invisible Hand Principle Unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically Through individual self interest and freedom of production 8 26 Discussion What is economics The study of how individuals firms and societies make decisions to improve their well being given limitations What is the economic problem Benefit cost and tradeoffs ex inflation Becomes a problem when costs outweigh benefits Basic economic principles Opportunity cost purchase something Net Marginal Benefit Principle The value of the next best alternative what you give up to do something or Increase the level of an activity is its marginal benefit exceeds its marginal cost Reduce the level if marginal cost exceeds the marginal benefit If possible pick the level at which marginal benefit equals the marginal cost Multiple Choice B bagel next best choice was a bagel after the burger D 80 value of the behavior is 80 therefore next best option is doing laundry A 0 61 cost was added by 61 cents when second unit was added Marginal the difference when 1 unit is added A food expenditures will consume food regardless of behavior B marginal cost is less than marginal benefit Downloaded by Michael Urso murso0425 gmail com lOMoARcPSD 46016802 8 29 Your parents gave you a used car valued at 10000 You were hoping for a sportier car valued at 18000 Opportunity cost of keeping the car your parents gave you 10000 Opportunity Cost Principle Students will cheat when benefits outweigh the cost Net Marginal Benefits Principle If you want to reduce cheating Increase the costs and reduce the benefits of cheating Increase the benefits of studying Cheat together in groups 8 31 22 1 Supply Demand INTUITIVELY 2 Develop the graphical model Price mechanism that allows the market to function Supply Shortage reason why we have inflation Not enough people selling the resources we want Inflation is NOT a cost it is an effect Supply Shortage leads to higher prices When the quantity demanded is greater than the quantity supplied price goes up Supply Surplus excess materials A Supply surplus leads to lower prices When the quantity supplied is greater than the quantity demanded prices go down 9 2 22 Demand Determinants of demand Tastes and preferences Income Prices of related goods The number of buyers Expectations regarding future prices income and product availability Downloaded by Michael Urso murso0425 gmail com lOMoARcPSD 46016802 Law of demand when all other factors are held constant there is a negative relationship between price and quantity demanded When prices fall consumers purchase more a product quantity demanded rises When prices rise consumers purchase less of a product quantity demanded falls As income rises demand for most goods increases normal goods There are some products in which demand declines as income rises inferior goods Supply Determinants of supply Production technology Costs of resources Prices of related commodities Expectations Number of Sellers in the market Taxes and subsidies Law of supply higher prices will lead producers to offer more of their products for sale When all other factors are held constant there is a negative relationship between price and quantity demanded When the cost of production increases Supply curve shifts to the right Market Equilibrium Market Equilibrium price at which quantity demanded equals quantity supplied At this price market is set to be at equilibrium If it is not in equilibrium it will eventually shift back Comparative Statics method of analyzing the impact of a change in the parameters of a model by comparing the equilibrium that results from the change with the original equilibrium ex ambiguous If consumers value for x increases demand shifts to the right If cost of producing x falls supply shifts to the right If both supply and demand for x increases at the same time it depends usually one is Downloaded by Michael Urso murso0425 gmail com lOMoARcPSD 46016802 9 12 22 Currently the number of organ donors in the US is not enough to meet demand Any advances in