Macroeconomics 1/08/2013 Notes:
1. Economics is a Social Science.
2. Economics is a form of applied logic (reasoning).
3. Economists study how individuals make decisions about:
a. Working and hiring
b. Buying consumer goods and services
c. Producing goods and services for sale
d. Building factories, equipment, and tools
e. Building and buying houses
f. Setting prices and reacting to them
g. Coordinating activities in the economy
h. Importing goods
4. Economists study the reasoning that drive economic decisions and outcomes
5. One might think of economics as the study of unintended consequences.
6. Understanding causes and effects is critical to:
a. Understanding the ultimate consequences of economic events and
b. Effective and responsible policy making
c. Not all causes and effects are analyzed.
d. We need to isolate causes and effects from things that occur together
7. Economics is the scientific study of how scarce resources are allocated among unlimited
a. Scientific method (based on observation)
i. Look at human behavior
b. Empirical science (not experimental) theories are tested actual data.
i. Real world experiments. Modeling.
8. Human Nature and Reality:
a. People have unlimited wants.
i. Most people in the economy want more. Ex) I have a car. I want a new car.
b. People have limited resources to acquire the things they want.
c. As a result, they must make choices.
d. Choices involve pursuing some things while forgoing others.
i. Must be willing to give up something to gain another.
9. Scarcity, Goods, and Bads
a. Any item that costs something must be scarce.
i. Anything with a price on it is called an economic good- these include goods
ii. A free good is a good for which there is no scarcity.
1. Ex) Barbershop. Unlimited quantity
iii. An Economic bad is anything you want to get rid of.
1. Ex) Pollution
b. Is clean air free? i. There is a Chinese billionaire canning and selling fresh air to those who are living
in villages covered in smog and are lacking clean air.
ii. Most countries have banned the sale of drugs, human trafficking, organs,
iii. Illegal agents make money by selling illegal items on the black market.
iv. As long as there is want and some sort of availability there is a way to sell them,
resulting in the continuation of illegal actions.
v. Who sets the price for these items? What is the result of that?
10. Clarifying Concepts:
a. Scarcity means that not enough is available for free.
i. There are limited availability for a set price for the items wanted.