This document provides an overview of key economic concepts covered in a unit 1 introduction to macroeconomics and microeconomics course. It defines the differences between macroeconomics, which looks at whole economies, and microeconomics, which focuses on individual decision making. Positive economics factually describes how economies work, while normative economics discusses how they should work. It also distinguishes between needs and wants, scarcity and shortages, goods and services, factors of production, production possibility graphs, demand, supply, business cycles, and price elasticity.

1. Unit 1 Notes

2. Macro vs Micro
Macroeconomics
• The entire economy that
covers ups and downs of
the economy
• GDP
• Employment
Microeconomics
• In which people make
decisions and how they
decide.
1. Market structure

3. Positive vs Normative
Positive (fact)
• Describes way economy
actually works
• Ex) minimum wage laws
cause unemployment
Normative
• Describes the way an
economy should work
• Ex) the gas price is too high

4. Needs vs Wants
Needs
• Basic requirements for
survival
Wants
• Desires for people’s
wants

5. Scarcity vs. Shortage
Scarcity
(permanent)
• Most fundamental
economic problems that
all societies face
• Trying to satisfy
unlimited wants with
limited resources
Shortage
• QD>QS
• Temporary

6. Goods vs. Services
Goods
• Tangible commodities
• Consumer goods
• Goods that are intended by
consumer for final use
• Capital goods
• Items used in creation of
other goods such as
factory machinery, trucks,
and tools
Services
• Worked performed for
someone else

7. Factors of Production
1. Land – natural resources
2. Labor – work force
3. Capital
• Human
• Knowledge and skills gained by experience
• physical
• Human made objects
4. Entrepreneurship
• Innovative
• Risk taker

8. Continue
• Trade offs
• Turns to alternatives
• Opportunity cost
• Most desirable alternative by giving up a decision
• “guns on Butter”
• Where are we spending our money
• How are we locating our resources

9. ProductionPossibilityGraph
Shows ways to get resources

10. Production Possibilities Key
Assumptions
1. Two goods are produced
2. Full employment
3. Fixed resources
• Land, labor, and capital
4. Fixed state of technology
5. No international trade

11. Demand
• Demand is the qualities that people are willing and able to buy
if the right price
• The law of demand: there’s an inverse relationship between
price and quantity supply
• Change in price = change in quantity demanded
• Causes of “change in demand”
1. Change in buyers taste (advertisement)
2. Change in number of buyers (population)
3. Change in income
4. Change in prices of related goods
• Complementary and substitute
5. Change in expectation

12. Supply
• Supply is quantity that producers or sellers are willing and able
to sell at different quantities
• Law of Supply: is the direct relationship between price and
supply
• Change in price = change in quantity supplied
• Causes of change in supply
1. Change in weather
2. Change in technology
3. Change in cost of production
4. Change in number of sellers
5. Change in taxes are subcities
6. Change in expectation

13. Business Cycles
• Expansion (growth)
• Real output in economy growing while recession is decreasing
• Peak
• Real GDP is at the highest
• Concretionary (recession)
• Real output in economy is decreasing and unemployment
increasing
• Trough
• The lowest point of real GDP

14. • Price elastic demand
• Tells how drastically buyer’s will cut or increase their demand of a
good when price fall or rise
• Elastic demand
• Demand will change greatly if change in price
• E>1
• Inelastic demand
• Demand for product wont change regardless of price
• E<1
• Unit elastic
• E = 1