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MACRO 2 SUMMER SCHOOL – 6.24.

08

CHARLES S. MUTSALKLISANA
Sproul 3125
Cmuts001@student.ucr.edu
Oh- tue: 11am – 1pm
Discussion- Hung-Lin Chen
Book – Paul Krugman and Robin Wells, Macroeconomics, worth Publishers, 2006.
ISBN: 0-7167-5228X (EAN: 9780716752288)

Lecture 1: what is economics?


Chapter 1

•Economic issues
• What goods and services are produce in the economy?
o Industrial goods- metals, cars
o Service goods-
o
• How are goods and services produced?
o Labor- humans going to work..
o Capital- computer, trucks, machinery
o Land
o Technology- the ability to do something
• For whom are goods and services used?
o People, firms, ect.
•Economics- study of economies, study of behavior of different identities make choice at
marginal in the presence of scarcity and unlimited wants
•Main branches of economics
Microeconomics- study of choice and decision interaction made by household individuals
and firms
-Macroeconomics- study of phenomenon and choice made by government and society
-difference micro= we as individuals while macro= decision made as a society
• Main issues of macroeconomics
• Monetary policy
• Dis.. policy
• Unemployment
• Inflation
• International trade
-Need for individuals choices: 4 principles of individual choice
• Resources are scarce
o All resources are limited
o Since resources are scarce, there is a tradeoff- give up foods for more tanks
• Real cost is the opportunity cost
o What one must forgo in order to get something you want
• Decisions are made at the margin
o Doing a bit more or less of an activity
o Decision to spend one more hour studying or sleeping
• People will exploit available opportunities
o People will exploit available opportunities to make themselves better off
 Incentives- reward
• Interactions: how economy work
o Interaction
• 5 principles of individual choice interaction
o Gain from trade and specialization
 By dividing tasks and trade, individuals can produce and get more of what
they want rather than being self-sufficient
o Markets move toward the equilibrium
 Equilibrium- When no individuals would be better off by doing something
different (no gain)
o Efficient allocation of resources
 Efficient allocation does not imply equity or fairness
o Markets normally lead to efficiency
 Concept of invisible hand (Adam Smith- Wealth of Nations)
 Market is inefficient when individual pursuit self interest in destruct form
making society worst causing “market failure”
o Inefficient market may be improved by government intervention
 Why market failure occurs
• Taxes
• Some things are better left for the government to take care of
• Efficiency does not = quality

Lecture 2: Economics models: trade-offs and trade


Chapter 2

• Economic models- Simplified replication of reality that is used to better understand real
life
• Ceteric Peribus- all other relevance remain unchanged, economist is able to focus on one
change at a time
• Production possibility frontier (PPF)
o Within the curve= not all resources are being used
o Outside the curve= not enough resources to be produced (not feasible)
o On the line= efficient and feasible
• Increase in opportunity cost when wanted to consume more goods
o Producing the first 20 fish... requires giving up 5 coconuts. But producing 20
more fish… requires giving up 25 more coconuts.
o Economics growth implies expansion of PPF
• Comparative advantage ad gain from trade
o Comparative advantage- the opportunity cost of that production is lower for the
individual than the other (producing at the lower opportunity cost)
o Absolute advantage- given the amount of input the person can do better than the
others
• Circular-flow diagram- model that represents the transactions in an economy by flows
around a circle
o Diagram representation of economic transaction
 Economic agents:
• Households
• Firms
 Where they interact:
• Factor markets
• Markets for goods and services

Lecture 3: Supply and Demand


Chapter 3 & 4

• Competitive market
• Law of demand: assuming other things remain constant, increase in price of a good
will lead to smaller quantity demand of that good. (gas prices)
o Change in demand curve
o Right- increase in demand
o Left- decrease in demand
• Changes in demand
o Prices of related goods
o Income
o Tastes
o Expectation
• Law of supply: assuming other things remain constant, increase in the price of good
will lead to a larger quantity supply of that good
o Right- increase in supply
o Left- decrease in supply
• Change in supply
o Price of input
o Technology
o Expectation

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