Summary macroeconomics

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This is the summary of the book "macroeconomics". The author(s) of the book is/are R Glenn Hubbard. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

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Summary - macroeconomics

  • 1 Economics: Foundations and Models

  • Scarcity
    A situation in which unlimited wants exceed the limited resources available to fulfill those wants
  • Economics
    Study of choices people make to attain their goals, given their scarce resources
  • 1.1 Three Key Economic Ideas

  • Market
    Group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
    • Most of economics involves analyzing what happens in markets
    • The study of how people make choices and interact within a market will return to three important ideas:
    1. People are rational
    2. People respond to economic incentives
    3. Optimal decisions are made at the margin
  • 1.1.1 People are rational

    • Economists generally assume that people are rational
    • this means that they assume that consumers and firms use all available information as they act to achieve their goals
    • The assumption of rational behavior is very useful in explaining most of the choices that people make
  • 1.1.4 Optimal decisions are made at the margin

  • Marginal
    extra or additional
  • Marginal analysis
    Analysis that involves comparing MB and MC
    • Some decisions in life are all or nothing, but most decisions are something in between.
    • Economists reason that the optimal decision isto continue an activity up to the point where the marginal benefit equals the marginal cost, MB=MC
  • 1.2 The economic problem that every society must solve

  • Trade-off
    The idea that because of scarcity, producing more of one good or service  menas producing less of another
  • Opportunity cost
    The highest-valued alternative that must be given to engage in an activity
    • Because we live in a world of scarcity, any society faces the economic problem that it has only a limited amount of economic resources and so can produce only a limited amount of goods and services
    • Trade-offs force society to make choices when answering the following three fundamental questions:
    1. what goods and services will be produced?
    2. How will they be produced?
    3. Who will receive them?
  • 1.2.1 What goods and services will be produced

    • This question is determined by the choices that consumers, firms and the government make
    • In each case, consumers, firms and the government face the problem of scarcity by trading off one good or service for another. and each choice made comes with an opportunity cost, measured by the value of the best alternative given.
  • 1.2.2 How will the goods and services be produced?

    • Firms choose how they will produce the goods and services.
    • Example: more workers or more machines
  • 1.2.3 Who will receive the goods and services produced?

    • Individuals with the highest income have the ability to buy the most goods and services
    • Often people are willing to give up some of their income - donate to the poorer poeple
  • 1.2.4 Centrally planned economics versus market economics

  • Centrally planned economy
    The government decides how economic resources will be allocated
  • Market economy
    The decisions of households and firms interacting in markets allocate economic resources
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Latest added flashcards

Shortage
A situation in which the quantity demanded is greater than the quantity supplied
Surplus
A situation in which the quantity supplied is greater than the quantity demanded
Market equilibrium
A situation which quantity demanded equals quantity supplied
Technological change
A positive or negative change in the ability of a firm to produce a given level of outputs with a given quantity of inputs
Law of supply
The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and in price cause decreases in the quantity supplied
Demographics
The characteristics of a population with respect to age, race and gender
Inferior good
A good for which the demand increases as income falls and decreases as income rises
Normal good
A good for which the demand increases as income rises and decreases as income falls
Ceteris paribus ("all else equal")
The requirement that when analyzing the relationship between two variables, such as price and quantity demanded, other variables must be held constant
Substitution effect
The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes