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Macroeconomics day 1.rtf

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ECON 102
Wokia Kumase

IntroductiontoMacroeconomics(econ102-04) the source of all economic problems is scarcity -economics is the social science that deals with the allocation of limit resources to satisfy unlimited human wants -how people decide what to but, how much to irk, save, spend -how firms decide how much to produce, how many workers to hire -how society decides how much to divide its resources between national defence consumer goods, protecting the environment, and other needs -Microeconomics: focuses of the chooses that individuals and businesses make -example: how will a change in the price of beer affect your demand -Macroeconomics: focus on the choices and performance of the national economy- aggregate values -example: how will a tax increase affect economic growth? -in macroeconomics, individual income is irrelevant. at the level of macroeconomics, the averageincome of canadians is looked at. average variablewhere as in micro economics, the individual income is looked at -how we can reducethe level of unemployment in canada -THE GENERAL -inflation-the rate as which prices for a particular item increases planned economy= command economy : An economy in which production, investment, prices and incomes are determined centrally by a government HOW PEOPLE MAKE DECISIONS Principle #1: people face tradeoffs -all decisions involve tradeoffs. -example: Going to a party the night before your midterm leaves less time for studying -having more money to buy stuff requires working longer hours which leaves less time for leisure -giving something up that you maybe don't want to but will have a better results in the long run -make sacrifices for the long run -society faces an important tradeoff: efficient vs equality -efficiency: When society gets the met from its scarce recourses -equality: when prosperity is distributed uniformly among societies members -tradeoff: To achieve greater equality, could redistribute income from wealthy to poor -BUT this reduces the incentive to work and produce, shrinks the size of the economic "pie" Principle #2: The cost of something is what you give up to get it -Making decisions requires comparing the costs and benefits of alternative choices -the opportunity cost of any item is whatever must be given up to obtain it -it is the relevant cost for decision making -example: The opportunity cost of going to college for a year is not just the tuition, books, and fees, but also the foregone wages "The best things in life are free" -even things without an explicit monetary cost are not truly "free" because they have an opportunity cost examples of the "best thing" -sitting at the top of the mountain and enjoying the view - the cost is that you could have been spending that time doing something else -going to the movies with your bf/gf -a movie you don't like and you could have been spending those three hours doing something else Principle #3: Rational people think at the margin: -make deacons by evaluating costs and benefits of MARGINAL CHANGES -incremental adjustments to an existing plan -rational individuals think at the margin :the dicisions you make at the edge -example: NOT whether you should drink alcohol or not but whether you buy the bottle or not Example: when a manager considers whiter to increase output, she compares the cost of the needed labour and materials to the extra revenue Principle #4: People resound to incentives -incentive: something that induces a person to act i.e: the prospect of a reward or punishment -rational people respond to incentives -price is the greatest incentive. example: IF with just a high school education you could make 100$/hour and with uni degree you would make 50$/hour, less people would go to uni -incentives make us act -alcohol = is 50$/bottle > consumption =less is 2$/bottle > consumption = increase -example: when gas prices rise, consumers buy more hybrid cars and fewer gas guzzling SUV's -when cigarettes races increase, teen smoking fails -INCENTIVES MAKE US ACT -if the prices of milk was raised, people would buy less milk>more children would become sick and the government would have to pay more money to provide for sick children.
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