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Macro Economics.docx

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McMaster University
Bridget O' Shaughnessy

1 Macro Economics­ Textbook Notes  Scarcity- the limited nature of society’s resources  Economics- the study of how society manages its scarce resources  Efficiency- the property society getting the most it can from its scarce resources  Equity- the property of distributing economic prosperity fairly among the member of society  Opportunity cost- whatever is given up to get something  Rational people- people who systematically purposefully do the best they can to achieve their objectives  Marginal changes- small incremental adjustments to a plan of action  Incentive- something that induces a person to act  Market economy- an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services  Property rights- the ability of an individual to own and exercise control over scarce resources  Market failure- a situation in which a market left on its own fails to allocate resources efficiently  Externality- the impact of one person’s action on the wellbeing of a bystander  Market power- the ability of a single economic actor to have a substantial influence on market prices  Productivity- the quantity of goods and services produced from each hour of a workers time  Inflation- an increase in the overall level of prices in the economy  Business cycle- fluctuations in economic activity, such as employment and production Chapter 2 2  Circular-flow diagram- a visual model of the economy that shows how dollars flow through markets among households and firms  Ppf- a graph showing output combinations given factors of production  Micro- firms in the markets decisions  Macro- government whole economy decisions  Positive statements- world as it is  Normative- how the world should be Chapter 3  Absolute advantage- producing goods according to productivity  Comparative advantage- the comparison among producers of a good according to their opp. Cost  Imports- sold domestically  Exports- sold abroad Chapter 4  Market- a group of buyers and sellers of a particular good or service  Competitive market- a market in which there a
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