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ECONOMICS
Why do people study economics?
Many study eco because they hope to make money. Some worry that they will be considered illiterate if they cannot understand the difference between supply and demand. Others are interested in learning how computers and the information revolution are shaping our society or why the inequality in the distribution of income has risen so sharply in recent years.
Economics
Defn: The study of how the forces of supply and demand allocate scarce resources. Subdivided into microeconomics, which examines the behavior of firms, consumers and the role of government; and macroeconomics, which looks at inflation, unemployment, industrial production, and the role of government.
ECONOMICS
MICRO-ECONOMICS
MACRO-ECONOMICS
MICRO-ECONOMICS
MACRO-ECONOMICS
Defn: Macroeconomics is a branch of economics that deals with the performance,structure, and behavior of a national or regional economy as a whole.
USES OF MACRO-ECONOMICS
The study of macroeconomics is imp as it tell us how the economy as a whole works. We cannot and derive the laws governing macroeconomic variables such as national income total employment general price level by studding micro-eco decision of ind consumers firms and industries. What is true in case of an individual firm or indus may not be true 4 the economy as a whole
The AD curve slopes downward to the right, indicating an inverse relationship between the amount of goods and services demanded and the price level.
P1 P2
A reduction in the price level will increase the quantity of goods & services demanded.
As illustrated here, when the general price level in the economy declines from P1 to P2, the quantity of goods and services purchased will increase from Y1 to Y2.
Price Level
P1
P2
A reduction in the price level will increase the quantity of goods & services demanded.
Other things constant, a lower price level will increase the wealth of people holding the fixed quantity of money, lead to lower interest rates, and make domestically produced goods cheaper relative to foreign goods. Each of these factors tends to increase the quantity of goods & services purchased at the lower price level.
economics
AS
P105
P100 P95
Goods & Services
(real GDP)
(P100)
An increase in the price level will increase the quantity supplied in the short run.
Y1
Y2
Y3
The ASC shows the relationship between the price level and the quantity supplied of goods & services by producers.
Price Level
economics
AS
P105 P100 P95
Goods & Services
(real GDP)
(P100)
An increase in the price level will increase the quantity supplied in the short run.
Y1
Y2
Y3
In the short-run, firms will expand output as the price level increases because higher prices improve profit margins since many components of costs will be temporarily fixed as the result of prior long-term commitments.
Resource Market:
Highly aggregated market where business firms demand resources and households supply labor and other resources in exchange for income.