micro and macro economics Flashcards
differences between micro and macro economics
micro: individual → household →firm
macro: national income → government → nation/ world
micro economics
micro economics studies the economic decisions and actions of consumers, producers and households and how these economic decision maker interacts
- market
- effect of prices of goods
- labour market
- consumer behaviour
- supply of good
more income = more demand
macro economics
refers to a national economy
deals with “big” issues
macro = big
economic systems
- are how society organises itself to allocate resources
- they develop the way people think and behave
- differ according to how much government involvement there is in making decisions related to the goods
market economic system
(pure capitalism)
in a free market economic system, the actions of indivudal consumers, firms and households in private sectors determine the allocation of resources.
no role for a governement and therefore no taxes or public spending
monaco pays city tax but not income tax
cassinos are abig money source
for the monaco government
planned economic system
(pure communism)
almost all economic decisions are taken by the government
complete oppo of market eco system
What is required to solve the resource allocation problem?
an econonomic system
which then divides in three subsection
1. free market
2. mixed market
3. planned market
Mixed economic system
in between market and planned
In reality there are no completly free or completly planned economies.
in a mixed economic system, ownership of scarce resources and decision about how to use them are split between the private sector and public sector, government authorities and organizations
all economies are mixed to some degree
what is a market
- will ultimately determine what goods and services are produced
- markets are a concept in micro economics
- sellers willing and able to supply or buyers willing and able to buy
a collection of buyer and sellers
market outcomes
Firms will earn a profit if they sell their goods or services to consumers at prices that exceed the cost of their production
market equilibrium
price mechanism
if producers and consumers agree upon a quantity and a price, there will be a market equilibrium
market disequilibrium
price mechanism
an increase of consumers and the inability to increase the supply
- some consumers may therefore be willing and able to obtain the goods they want
(If the cost of production is unchanged, higher prices will mean higher profits so producers may be encouraged to increase supply)
think of the contrast too
demand
demand is the want or willingness of consumers to buy goods and services
effective demand - must have enough money as a customer (willing and able)
price and demand theory: normal goods
the demand will rise when the price falls
extension contraction
the demand curves will be moved as the price changes → the quantity they demand each period extends (extension) when the price lowers and contracts (contraction) when the price rises
ceteris paribus
all other things remain unchanged
difference between individual demand and market demand
a market demand is the total demand of a good for all consumers in the market
an individual demand is a single demand for a good for an individual consumer
supply
supply refers to the amount of a good or service firms or producers are willing to make and sell at different prices
quantity supplied
def of supply
supply refers to the amount of a good or service firms or producers are willing to make and sell at different prices
you dictate your price to your customers
shifts in supply curves
non price determinant: income, taxes, trends/fashion
shows how the amount of the firm are willing and able to supply of that product that will change as the price of the product varies
when producers are affected by the rising costs
they will
- cut back their demand for labor and raw materials
so they will be less willing and able to supply as much of their goods as before
technological advance can reduce production cost
