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FSU Macro Economics 2013 Carrie Lee (3).
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FSU Macro Economics 2013 Carrie Lee (3).
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FSU Macro Economics 2013 Carrie Lee- Centrally planned economies - ANS-economy in which the government decides how economic
resources will be allocated
Biases in CPI - ANS--substitution bias
-increase in quality bias
-new product bias
-outlet bias
Scarcity (discuss how scarcity results in choices and trade-offs) - ANS--situation where
unlimited wants exceed limited resources available to fulfill those wants
-leads to choices
-choices result in trade offs
foundations for a market system - ANS--entrepreneurs
-legal system
-protection of private property
-enforcement of contracts and property rights
Economics - ANS--the study of human behavior, with an emphasis on human decision making
the
-the study of the choices people make to attain their goals given their scarce resources
Three key economic ideas: - ANS-- People are rational
- People respond to incentives
- Optimal decisions are made at the margin
Opportunity cost (define and provide examples) - ANS--the highest valued alternative that must
be given up to engage in an activity
-there is no such thing as a free lunch
Three fundamental questions every society must answer: - ANS-- What goods and services to
produce?
- How to produce the goods and services?
- Who will receive the goods and services?
- Market economies - ANS-economy in which the decisions of households and firms interacting
in markets allocate economic resources
- Mixed economies - ANS-economy in which most decisions are made by buyers and sellers in
markets but the government plays a significant role in the allocation of resources
, Positive (define and provide examples) - ANS--concerned with "what is"
-a positive statement can be tested
normative economics (define and provide examples) - ANS--concerned with what "should be" or
"ought to be"
-a normative statement cannot be tested
increasing marginal opportunity costs - ANS--the more resources devoted to one activity the
smaller the payoff of devoting additional resources to that activity
-occurs BCS not all resources are equally well suited to the production of different goods
as you produce more of one good - ANS-you must give up larger and larger quantities of the
other good (op cost are increasing)
Production possibilities frontier:
- Efficient, inefficient, unattainable points
- Illustrates opportunity costs
- Differentiate between constant and increasing marginal opportunity costs - ANS--a curve
showing the maximum attainable combinations of two goods that can be produced
a "change in quantity demanded" - ANS-is a movement along the same demand curve
a "Change in demand" - ANS-is a shift of the entire demand curve
factors that shift market demand - ANS--income (normal and inferior goods)
-prices of related goods (substitutes and complements)
-tastes and preferences
-population and demographics
-expectations
Components of GDP - ANS-consumption
-services
-nondurable goods
-durable goods
Investment
-business fixed investments
-residential investment
-changes in business inventories
government purchaes
net exports
factors that shift market supply - ANS--prices of inputs
-technological change
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