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While MacroEconomics deals with Aggregate economic variables; what does micro economics deal with?
the behavior of individual economic units—consumers, firms, workers, and investors—as well as the markets that these units comprise.
List Four aggregate economic variables that MacroEconomics deals with
- -The national output (level and growth rate)
- -Interest rates
List Five aspects that MicroEconomics deals with?
The behavior of individual economic units—
- (1) Consumers
- (2) Firms
- (3) Workers
- (4) Investors
- (5) Markets—as well as the markets that these units comprise.
Positive versus Normative Analysis
Which analysis is based on questions of what ought to be?
Normative analysis-Analysis examining questions of what ought to be.
Normative- beleifs, Subjective, Difficult to resolve, what should be?
Differentiate between Positive versus Normative Analysis
Which analysis describes relationships of cause and effect?
-Analysis describing relationships of cause and effect
- Based on the following:
- Facts; Easy to resolve factual issues eg minimum wage is $7.25 is a fact.
What is arbitrage?
- -Practice of buying at a low price at one location and selling at a higher price in another.
- -The simultaneous purchase and sale of an asset in order to profit from a difference in the price
- -Arbitrage exists as a result of market inefficiencies
- -It is a trade that profits by exploiting price differences of identical or similar financial instruments
Real Vs. Nominal Prices
(1) Which of these is the absolute price of a good, unadjusted for inflation?
(2) What is the formular for Real price?
(1) Nominal Price
(2) Real Price = Nominal price - Inflation
Thereby, Real prices > Nominal price
What is the effect of unit elasticity on Revenue?
The responsiveness of quantity demanded to changes in prices of related goods
Cross price elasticity of demand
Under cross elasticity, when are good classified as substitutes of each other?
Classification of goods:
a. Substitutes: if cross elasticity > 0
b. Complements: if cross elasticity < 0
Under elasticity of demand? what are the 4 main determinants of demand that were treated in class?
- •Price of commodity
- •Consumer income
- •Prices of substitutes
- •Prices of complements
...........measures the responsiveness of quantity demanded to changes in one of the determinants of demand
Elasticity in General
What is the general formula for finding Elasticity?
»percentage change in quantity demanded / percentage change in determinant (P or I)