Macroeconomics

Outline 1:

One choice that we have to make is the choice between fixing a broken car or going on a weekend vacation to the mountains. We gave up the weekend vacation to get the car fixed which was wanted more.

Another choice that one might have to make is to choose between eating dinner out as a family or going to the movie on a date with your significant other. If you chose to go out as a family you are giving up the opportunity to go on a movie date with your significant other. The resource that is scares in both of these situations is money.

Outline 2:

The three key economic ideas are people are rational, people respond to incentives, and optimal decisions are made at the margin. People are rational in that they make informed decisions using information that they have gathered to weigh the befits and the costs. People respond to incentives by looking at what will best benefit them when faced with options. Optimal decisions are made at a margin meaning that some decisions that people make are not all or nothing decisions. Some decisions are made on a margin; giving up a little of something to gain another.

The three fundamental questions that every society must answer to be able to make economic decisions are what goods and services should be produced; how to produce goods and services; and for whom to produce the goods and services. A firm or country must choose what good or service to produce based on consumers because resources are scarce. A firm or country must decide how to produce goods or services: does one use more labor intensive or capital intensive business to achieve optimal production. Who will receive the goods or services produced by a country or firm is dependent on the individual consumers ability to afford what is being produced.

Society may answer the fundamental economic questions based on the choices of firms, individuals and the government; based on the availability of resources; and based on the affordability of a good or service.