Mac Econ

The way resources are allocated among alternative uses to safity human wants

• Anythign that can be used to produce somthing else
• Land: our natural resources, soil, fertility, forest, water
• Labor: human capacity for work
• Capital: machinery and buildings used in production

When there is not enough of resouce to safisy various ways a society wants to use it.

• Our knowledge with respect to science and industry
• It is our practical aplication of our knowledge
• Key ingredient

• Establishes a relationship between varialbes
• Allows us to predict things
• Also simplifies reality or abstracts from reality

• 1) Develop reasonable assumpion about economic behavior
• 2)Identiry your categories and develop variables to meause these
• 3) We state the hypothesis regarding the relationship between variables
• 4) Conduct and collect data to test the hypotheis

• Joseph Schumpter: Emperical model is objective. Step 4 establishes the facts which mean value free and unbiased. Does acknowledge subjectiveity in step 1
• Gunnar Myrdal: It is not objective in any sense because there are values int eh facts. Our opinion is what says if facts are good or bad

• Facts
• Value Free
• How the world works

• Good and bad
• What is fair
• How should work

An economy is efficient if it takes all opportunity to make some people better off without making others worse off.

Insuring everyone gest their "fair share"

• Move in same direction
• Slope is positive

• Monve in oppposite direction
• Slope is negative

What an individual must give up on order to get more of somthing esle

• Movements along cuvre if technology and resources are fixed.
• More resouces or improvments in technology shift it outword

The bigger the distance between each point represents increasing opportunity costs

• The central economic institution in neoclasical economics is the market. It prefers 3 main functions:
• 1) Market forces determine prices and income
• 2)Direct the product and allocation of goods and servces
• 3)automaticall adjust to change in circumstances

• There is an inverse relationship between the price of a good and the quantity demanded of that good, all else equal
• Income effect: Prie goes down so people buy more
• Sustitute effect: Shere goods can replace others similar
• These are all movements along the curve

• These are shift perameters
• Peoples taste and preferences
• Peoples income: Normal good (stead) inferior (beans)
• Prices of substitue and complimentary goods
• Peoples ezpectaions of the future

• Indicates a direct relationship between the price of a good and quantity supplied of that good, all esle equal
• This is a movement along the supply cuve

• This is a shift of the supply curve
• Cost of production: Price of input, Technology
• Entry and exit of firms

The price when quantity demanded equals quantity supplied

Price will Fall because producers will compete price down

Price will rise because consumers will compete price up

• 1)Force of demand and supply have free play (no govt)
• 2)Many buyers an sellers
• 3)sufficient information
• 4)Individuals are rational: selfish
• 5)Surplus price fall and shortage price rise

• In neoclassical economics the market is either in equilibrum or tending towards equilibrium
• Demand Shift to right shortage happens
• Suply shift to right, surplus happens

Total demand for ouput in the economy

Total production of output in the economy

AD=AS

• Supply creates it's own demand.
• Agregate demand can never be deficient

• They are excludable- suppliers can prevent people who do not pay from conuming the good
• They are rival in consumption- one unit of good can't be consumed by more than 1 person without diminishing the benefit

• They are Non-excludabe-supplier can not prevent consumption from those who don't pay
• Non-rival in consumption- additional people consuming good do not diminish benefit to others

• National Defense
• Education
• Other goods and Services
• Transfers

Transter of tax revenues from tax payers in general to specific government programs

• Provide public good and servies
• Redistribution of income
• Stabilization: maintian low unemployment and low inflation
• Economic Regulation: Gov't provides rules of the game and enforces them

Issue with public goods where self interested persons who do not pay consume good by taking free ride from people who do pay.

Public goods are less profitable, therefore private firms won't supply it

A compulsory payment to Gov't

Total taxes paid realitve to tax base

• Personal
• corporate income

The additonal tax on additional income

Total taes paid divided by total income

• Property
• Iheritance tax

• Sales and excise taxes: on production of goods
• Social security: tax on activity of work

• 1) Equity: is tax fair
• 2) Efficiency: Does the tax inhibit growth
• 3) Is the tax enforcible: loopholes

Unequals treaed unequal so rich pay more

If you are benefiting you should be paying taxes

Fairness on those who can afford to and those who can't

Tax rate increasess as income increases so this is a direct reletionship

Tax rate decreases as income increases. This is a inverse relationship

The rate is the same at all levels

• Incidence or burden can not be shifed to others
• ex: income tax on households, social security, inheritance tax

• The incident or burden can be shifted to others
• ex: corporate profits, property taxes on rental unitys, sales tax, exsice tas

Gross Domestic Product: the toatal curren value of final goods and services produced in the boundries of U.S.

Gross National product: The total current value of final goods an services produced by u.s fimes at home and abroad.

• 1) National incoma nd product accounts
• 2) The value added approach: the difference between final price of a good and the cost of intermideiate goods use to produce it.

• What it does not measure
• 1) Distribution of income
• 2) Damage to the enviornment