Micro Exam

Macro refers to the level of economic activity. Deals with the level of prices, income, employment, etc. in the whole economy.

Micro refers to the structure of economic activity. Deals with the small units like a business firm, an industry, or a single market.

Assuming other things to remain the same. Used to get around not being able to conduct controlled experiments.

Ex:If the price of beef increases, ceteris paribus, people will purchase less beef. In this situation, ceteris paribus means that the possibility of other changes affecting the sales of beef will not be considered. Other things could happen that would keep the sales of beef the same or even increase the sales of beef – for example, the price of other meats could increase even more than the price of beef increased, leaving beef as the cheapest meat available, or the Centers for Disease Control could announce that eating beef prevents cancer, which would most likely increase the sales of beef – but in this situation, we only want to consider what happens if the price of beef rises while keeping all other factors the same.

It asserts that there is scarcity; that is, that the finite resources available are insufficient to satisfy all human wants and needs.

The Wealth of Nations and An Inquiry Into the Nature and Causes of the Wealth of Nations

Positive-Approach to econ involving statements of facts ex:"government-provided healthcare increases public expenditures"

Normative-Approach to econ giving interpretations of facts ex:"government should provide basic healthcare to all citizens"

Economists take a normative economic approach when they formulate policy

If you save your income its good for you, but if everyone saves their income, then the economy will turn bad.

Economic Growth: (Annual increase of GDP by 3-5%) No, our increase is 2.9% 

Full Employment: (Unempl of <5%) No, 5.5%

Price Stability: (Annual increase in CPI of <5%) Yes, increase of 1.4%

Direct Relationship: Two variables move in the same direction that is, they both increase or decrease at the same time (e.g. the number of inches of rainfall per month & the sale of umbrellas)

Indirect Relationship: Two variable moves in the opposite direction, that is as one increases, the other decreases at the same time (e.g. the number of inches of rainfall per month and the sale of sunglasses)

• 1) Household/consumer
• 2)Business
• 3)Government
• 4)Foreign

A way to show the problem of using scarce resources to satisfy unlimited wants graphically. The bow is because of a transfer of resources they are not transferable to a 1 to 1 basis, but to a 1 to 3 or different among sectors of an economy

Full production/full employment ON the curve

The most highly valued opportunity or alternative given up when a choice is made

Unbalanced: technology changes in only one sector (lines meet up eventually)

Balanced: Technology changes in all sectors of the economy (lines are parallel)

• Without SS and Medicare (80% Private 20% Gov)
• With(62% P and 38% G)

We need to increase the rate of economic growth faster than the rate of increase in the size of government

All other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

Change in Quantity Demanded: A movement from one row to another in the demand schedule or a movement along (up or down) the same demand curve Cause: A change in price (only)

Change in Demand: An increase or decrease in ALL the QD's at the same prices in the demand schedule, or a shift outward (to the right) or inward (to the left) of the D curve Causes: change in the # of buyers (population, weather), change in consumer taste, income, or price of other goods

All else equal, an increase in price results in an increase in quantity supplied.

Change in Quantity Supplied Cause: A change in price

Factors causing a change in Supply: change in the number of sellers, change in seller expectations about the future price of a good, change in production costs, change in technology

Traditional analysis is minimum wage is above market equilibrium

New analysis is minimum wage is below market equilibrium

Demand:How responsive are consumers to a given % change in P?(will they change their purchases by a larger, equal, or smaller % in response to a certain % change in P?)

Supply:How responsive are sellers to a given % change in market P? (Assuming they have no control over market price, will they change their output for sale by a larger, equal, or smaller % in response to a certain % change in the market P?)

• 
• If E is > 1 it's Elastic
• If E is < 1 it's Inelastic
• If E = 1 it's Unitary

• 1) (P*Q)/time
• 2)If P and TR move in the opposite direction, D is elastic
• 3)If P and TR move in the same direction, D is inelastic
• 4)If any change in D results in NO change in TR, D is unitary

No TR for supply

Elastic: if a % change in P generates a LARGER % change in QD

Inelastic: if a % change in P generates a SMALLER % change in QD

• 1) # of substitutes available for product, many=Elas, few=inelas
• 2)% of Y income required to purchase product, large=elas, small=inelas
• 3)How product is perceived by consumer, luxury=elas, necessity=inelas
• 4)Time Factor, long period-elas, short period=inelas

• (after the midpoint formula)
• If Ey is positive the good is a normal good
• If Ey is negative the good is an inferior good
• If Ey is positive 1 the good is unitary normal
• If Ey is negative 1 the good is unitary inferior

• Total Utility=Amount of satisfaction(from all units bought)
• Marginal Utility=Additional satisfaction of each additional scoop per unit

If you buy more units, MU diminishes