Macro Notes

September 7, 2014 (a little behind, due to being sick)

Chapter 1: Economics Foundations and Models

Marginal: extra or additional

o Marginal benefit (MB), marginal cost (MB)
o Optimal decision is to continue any activity up to the point
where the marginal benefit equals the marginal cost (MB =
MC)
Marginal analysis: Analysis comparing MB and MC

The Economic Problem That Every Society Must Solve

Trade-offs: Producing more of one good or service means
producing less of another good or service.
Opportunity cost: Highest valued alternative that must be given
up to engage in an activity
Productive efficiency: Occurs when a good or service is produced
at the lowest possible cost
Allocative efficiency: Occurs when the production corresponds
with consumer preferences
Voluntary exchange: Trade where the buyer and seller are both
better off than they were before
Equity: Fair distribution of economic benefits (government policy
makes often face a trade off between equity and efficiency)
Economic Models: Simplified versions of reality used to analyze realworld economic situations
Economic variable: something measurable that can have
different values (ex: income of doctors)
Positive analysis: What is
Normative analysis: what ought to be (economists more
concerned with positive analysis)
Microeconomics: Study of how households and firms make choices,
how they interact in markets, and how the government attempts to
influence their choices.
Macroeconomics: Study of the economy as a whole, including topics
such as inflation, unemployment, and economic growth.