Macro Basic Flashcards
Scarcity of resources - a central idea of economics.
Normative statement: a value statement about whether a situation is desirable or not, which cannot be proved. it’s subjective.
Positive statement: a statement that be tested/proved/rejected by evidence. it’s objective.
Focusing on the evidence is called adopting an empirical approach.
Most economic decisions and policy are influenced by value judgements, which vary from person to person, resulting in fierce debate between competing political parties.
Production Possibilities Curve: a curve to indicate possible production combinations of two foods with the fixed resources. key concept is trade off.
On the frontier, the production is most efficient with the fixed resources.
Under the frontier, the resources are under utilized and the production is not efficient.
It’s impossible to produce above the frontier.
When there is economic expansion. the frontier of PPC will move further outward.
At economic contraction, it will shift inward.
Absolute advantage is the capability to produce more of a given product using less of a given resource than a competing entity.
Comparative advantage is the ability to produce a particular good or service at a lower marginal and opportunity cost over another.
Comparative advantage is the driving force of specilization.
Demand and quantity of demand is different. Demand is the aggregated demand curve while quantity of demand is a measurement of demanded quantity of a specific product.
Change in quantity of demand, it’s a change along the demand curve. change in demand, the whole demand will shift.
When people’s income increases, population grows (no. of buyers), demand will grow, meaning demand curve will shift to right.
demand curve represent the aggregated behaviors of all buyers in the market, is about how they buy different quantities of goods and services at all possible prices.
For normal goods, when people’s income increase, the demand for the normal goods will increase.
for inferior goods, when people’s income increase, the demand for inferior goods will go down since people can afford better quality goods. but when income goes down, its demand will go up since people cannot afford better products and can only afford inferior products.
a change of demand in a goods’ complements and substitutes can cause the demand curve of the goods to shift.
Demand-side economist: John Maynard Keynes
Supply-side economist: classical school, focus on production of goods and services.
The prices are correlated with quantity supplied, but price will not impact on total supply while only non-price factors will shift supply curve (number of sellers, level of technology, prices of inputs used to product a good, government regulation, subsidies or taxed in a market, price of other goods that seller could produce, the expectations among producers of future prices).
When supply decreases due to non-price factors, the supply curve moves left, meaning at the same price, the new quantity supplied is smaller than previous quantity supplied.
when supply increases, the supply curve moves right.
when demand increases, the demand curve moves outward, meaning at the exact same price as before, the new quantity demanded is higher than previous quantity demanded.
an equilibrium occurs when price is adjusted until quantity supplied is equal to quantity demanded.
When where there is disequilibrium, there will be either a shortage or a surplus.
at equilibrium, the price, the equilibrium price, is also called “market clearing price”. the quantity is called equilibrium quantity.
GDP is the market value of FINAL goods and services that are produced within a country in a given period. if a chinese company manufactured in US, its final goods and services should be counted into GDP of US. intermediate goods are not counted in GDP.
GNP is by nationality.
“Investment” means differently for everyday language and economic language. in economic languages, it means new spending by firms (i.e. capital equipment, inventory or buildings) and new homes for households. but if it’s a home transferred from one household to another, it’s not “investment”. “Consumptions” means any spending on newly produced final goods by households except new homes. (i.e. education).
GDP can be calculated by approaching of expenditures or incomes of households, since expenditures of households will become revenues of firms and firms’ expenses/profits will become incomes of certain households.
Value-added approach to calculate GDP: an approaching of summing up all the value added by all the intermediate producers in a nation.
There are 4 contributors in GDP’s generation. firms, households, governments, foreign companies.
Y(GDP)=new investments (from firms and new house from HH) + new consumptions(from HH) + new spending of gov. on goods and services + exports - imports
Government spending, part of GDP, which consists of mandatory expenditures and discretionary expenditures.
Mandatory spending includes Social Security, Medicare, unemployment payments, federal worker retirement benefits, and Medicaid payments.
discretionary spending includes government worker pay, military salaries, and government investments in equipment and software.
