MACROECONOMICS

NOTES AND GUIDE

By : JANIENE SMITH

CHAPTER 1
WHAT IS ECONOMICS?

WHAT IS ECONOMICS?
ECONOMICS is the social science that studies the choices
that individuals, businesses, governments, and entire
societies make as they cope with scarcity and the
incentives that influence these choices.
scarcity our inability to get everything we want
incentives is a reward that encourages an action or penalty that discourages one

BRANCHES OF ECONOMICS
MICROECONOMICS is the study of choices that individuals
+ businesses make and the way these choices interact
with in markets + influence governments
EXAMPLE = Why people downloading more movies? How would a tax on ecommerce affect e-bay?

MACROECONOMICS is the study of performance of the

national economy and the global economy.
EXAMPLE = Why is the U.S. unemployment rate so high? Can the Federal
Reserve make our economy expand by cutting interest rates?

GOODS AND SERVICES:

WHAT? HOW? FOR WHOM?
Goods and services are the objects that
people value and produce to satisfy human
wants. Goods are physical objects such as cell
phones and automobiles. Services are tasks
performed for people such as cell-phone
service and auto-repair service.
What we produce varies and changes over time.
In the U.S. agriculture accounts for 1% of total production;
manufactured goods 22%, and services 77%.
In contrast China agriculture accounts for 11%, manufactured goods 49%
and services 40%.
What determines these patterns of production?

GOODS AND SERVICES:

WHAT? HOW? FOR WHOM?
Goods and services are produced by using
Productive resources that economists call
factors of production. They are categorized in 4
categories: Land, Capital, Labor, and
Entrepreneurship.
LAND Includes minerals, oil, gas, coal, water, air
forests, and fish. Some resources are recyclable
and/or renewable like land surface and water.
Resources that we use to create energy can only
Be used once.
CAPITAL tools, instruments, machines, buildings,
and other constructions that businesses use to
produce goods services
FINANCIAL CAPITAL money, stocks, bond. Enables business to borrow funds to use for physical capital. But its NOT used in producing goods
and services. Not a productive resource.

LABOR -The work time and work effort that people devote to producing goods and services is called labor.
HUMAN CAPITAL the knowledge and skill people obtain from education, on-the-job training, and work experience. The quality of labor
Depends on human capital

ENTREPRENUERSHIP- The human resource that organizes labor, land, and capital is called entrepreneurship.
Entrepreneurs come up with new ideas about what and how to produce, make business decisions,
and bear the risks that arise from these decisions.

GOODS AND SERVICES:

WHAT? HOW? FOR WHOM?
Income determines who consumes the good and services that are produced. People with large incomes can buy
a wide range of goods and services. People with small incomes have fewer options and can afford a smaller
range of goods and services.
People earn their incomes by selling the services of the factors of production they own:
Land earns rent.
Labor earns wages.
Capital earns interest.
Entrepreneurship earns profit.
We can get a good sense of who consumes the goods and services produced by looking at the percentages of total
income earned by different groups of people. The 20% of people with the lowest incomes earn about 5% of total
income, while the richest 20% earn close to 50 percent of total income. So on average, people in the richest
20% earn more than 10 times the incomes of those in the poorest 20%.
Why is the distribution of income so unequal? Why do women and minorities earn less than white males? Economics
provides some answers to all these questions about what, how, and for whom goods and services are produced.