Macroeconomics: Chapter 1

Three Fundamental Question

1) What goods and services will be produced 2) How will the goods and services be produced? 3) Who will receive the goods and services produced?

Mixed Economy

An economy in which most economic decisions result from the interactions of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Centrally Planned Economies

An economy in which the government decides how economic resources will be allocated.

A market is a group of _______and______of a good or service and the institution of arrangement by which they come together to trade

Buyers and sellers

Normative Analysis

Concerned with "What ought to be"

Positive Analysis

Concerned with "what is" Measures the cost and benefits of different coerces of action

How do market economies ultimately determine what goods and services are produced, how the good and services are produced, and who will receive the goods and services?

Consumers determine what goods and services are produced, firms determine how to produce them, markets determine who will receive them.

Deciders on what goods and services will be produced?

Consumers, firms, and government

Who receives goods and services depends largely on

How income is distributed

Microeconomics

How individual households make choices and how they react to changes in product prices

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

Marginal benefits equal;l marginal cost.

Scarcity

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economists calls...

Economic Models are

Simplified versions of reality designed to analyze "what is" to explain human decision making in any context.

When the federal government crafts environmental policies that make it less expensive for firms to follow green initiatives..

The economic policies are consistent with economic incentives

Macroeconomics

The economy as a whole, such as how rapidly the economy grows. topics such as inflation, unemployment and economic growth.

Equity

The fair distribution of economic benefits.

Opportunity Cost

The highest valued alternative that must be up to engage in an activity.

Economics

The study of the choices people make to attain their goals, given their scarce resources.

Market Economies

When the decisions of households and firms determine what is being produced, how its produced, and how much is produced.

Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?

When we assume the managers at Microsoft have used all available information and weighed all known benefits and costs, we are assuming rationality.

Product Efficiency

Where goods and services are produced at the lowest possible cost.

Allocative Efficiency

Where production is consistent with consumer preferences