Key Terms
MACROECONOMIC GOALS (the three targets)
1. Growth in the standard of living 2.
CETERIS PARIBUS
Latin for "other things being equal." Every demand (and supply) curve assumes all other variables are held constant. Wit
Example
Green Revolution seeds doubled per-acre wheat/rice harvests; supply shifted right across low-income countries.
Example from source
Qd = 16 - 2P Qs = 2 + 5P
Plug back in
Qd = 16 - 2(2) = 12 Qs = 2 + 5(2) = 12
Equilibrium
The point where quantity supplied equals quantity demanded; the market clears with no surplus or shortage.
Result
Lower equilibrium price, lower equilibrium quantity.
Scarcity
Condition where resources are limited relative to unlimited wants.
Opportunity cost
The value of the next best alternative foregone when a choice is made.
Division of labor
Breaking production into specialized tasks performed by different workers.
Economies of scale
As production volume increases, average cost per unit decreases.
Microeconomics
Study of individual agents (households, firms, workers).
Macroeconomics
Study of the economy as a whole (growth, unemployment, inflation, trade).
Monetary policy
Central bank management of interest rates and credit (Federal Reserve in the U.S.).
Fiscal policy
Government spending and taxation decisions (Congress and executive branch in the U.S.).