MACROECONOMICS - CLUTCH CH. 1 - INTRODUCTION TO...

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MACROECONOMICS - CLUTCH

CH. 1 - INTRODUCTION TO MACROECONOMICS

CONCEPT: INTRODUCTION TO ECONOMICS

● Facts about the real world (of economics):

□ Scarcity – we have unlimited wants, but __________________ resources to fulfill those wants

□ Trade-offs – giving up one thing to get something else

□ Opportunity Costs – the value of the next-best alternative to a choice

● Economics – a social science focused on the ___________________ made by individuals, institutions, and society

under conditions of scarcity.

□ Microeconomics – choices that individuals and businesses make

- Prices: How a price change affects supply and demand of a product

- Profit: Maximizing profit in different market structures

- Operations: Deciding how many laborers to hire and what to pay them

□ Macroeconomics – the study of the economy as a whole (nationally or globally)

- Recessions: Underlying causes of economic recessions and booms

- Inflation: The effects of inflation on interest rates and the supply of money

- Unemployment: Defining and understanding the reasons for unemployment



PRACTICE: The opportunity cost of going to a baseball game is

a) The face value of the ticket

b) The face value of the ticket plus the cost of snacks at the ballpark

c) The total cash spent plus the value of your time

d) Zero, if you enjoyed the baseball game

PRACTICE: Economics can be best defined as the study of

a) Profit maximization

b) Predicting inflation patterns

c) Income distribution and the effects of poverty

d) How society manages its scarce resources



CONCEPT: THREE KEY ECONOMIC IDEAS

● People are rational

□ Individuals and firms attempt to do their best with what they have.

Exams:

Factories:

● People respond to economic incentives

□ People take advantage of opportunities to make themselves better off.

Oil Change:

Apples:

● To make the best decisions, we use marginal analysis

□ In economics, marginal means “extra” or “additional”

Key Formula for the entire class:

𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 = 𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡

● Allocative Efficiency ● Optimum Consumption ● Profit Maximizing Point

Legend:

Marginal Benefit =

Marginal Cost =

Slices of

Pepperoni Pizza

Happiness

1 2 3 4 5 6 7



PRACTICE: In economics, marginal means

a) Additional

b) Extra

c) One more

d) All of the above



CONCEPT: PRODUCTIVE AND ALLOCATIVE EFFICIENCY; EQUALITY

● Efficiency means that society is getting the _________________ benefits from its scarce resources.

□ Productive efficiency – maximizing output at the lowest possible cost

- Attainable vs. Unattainable

□ Allocative efficiency – production represents consumer preferences

FSU:

NYU:

□ Equality (Equity) – the fair distribution of economic benefits

Deep-dish Pizzas

Light Beer



CONCEPT: FACTORS OF PRODUCTION

● Factors of Production (Resources) are classified into the following categories:

□ Land – all _____________________________ used in the production process

□ Labor – physical and mental contributions of the people in the production process

□ Physical Capital – factories and equipment used in the production process

□ Human Capital – productivity of the labor force

□ Entrepreneurship – the resource that organizes, manages, and assembles the other factors of production



CONCEPT: POSITIVE AND NORMATIVE STATEMENTS

● Positive Statements make a claim about how the world is

Statement A:

Statement B:

● Normative Statements make a claim about how the world ought to be

Statement A:

Statement B:

EXAMPLE: Label the following statements as Positive Statements (P) or Normative Statements (N)

The government should provide healthcare to all of its citizens.

Minimum wage laws are a bad idea because they cause unemployment.

Rising gas prices cause people to buy less gas.

Minimum wage laws cause unemployment.

The government ought to increase the minimum wage.

Normative Statement Keywords:



CONCEPT: CIRCULAR FLOW DIAGRAM

● A model illustrating the relationship between firms, households, goods and services, and the factors of production:

□ Household – person or group of people that share income

Buy: Sell:

□ Firm – organization that produces goods and services

Buy: Sell:



CONCEPT: GRAPHING REVIEW

The two-variable graph:

- i.e. Demand Curve

Drawing curves and shifting curves:

Demand Schedule

Price ($) Quantity

6 1

5 2

4 3

3 4

2 5

7

6

5

4

3

2

1

Shifting Curves (visually)

1 2 3 4 5 6 7



Calculating Slope of a Straight Line:

𝑆𝑙𝑜𝑝𝑒 =𝑅𝑖𝑠𝑒

𝑅𝑢𝑛=

∆𝑦

∆𝑥=

𝑦2 − 𝑦1

𝑥2 − 𝑥1=

𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑣𝑎𝑙𝑢𝑒 𝑜𝑛 𝑣𝑒𝑟𝑡𝑖𝑐𝑎𝑙 𝑎𝑥𝑖𝑠

𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑣𝑎𝑙𝑢𝑒 𝑜𝑛 ℎ𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙 𝑎𝑥𝑖𝑠

1 2 3 4 5 6 7

7

6

5

4

3

2

1

1 2 3 4 5 6 7

1 2 3 4 5 6 7

7

6

5

4

3

2

1

7

6

5

4

3

2

1

a) b)

c)



Calculating Slope of a Curve:

- Point Method

Calculating Slope of a Curve:

- Arc Method

1 2 3 4 5 6 7

7

6

5

4

3

2

1

1 2 3 4 5 6 7

7

6

5

4

3

2

1

Instructions:

1. Draw a tangent line at the selected point.

A tangent line touches the curve at only one point

2. Calculate the slope of the tangent line

Instructions:

1. Draw a line connecting the ends of the arc.

2. Calculate the slope of the connecting line.

This is the ________________ slope over the arc.



Finding the Maximum Point:

Finding the Minimum Point:

1 2 3 4 5 6 7

7

6

5

4

3

2

1

1 2 3 4 5 6 7

7

6

5

4

3

2

1



Calculating Area of a Triangle:

1 2 3 4 5 6 7

7

6

5

4

3

2

1

1 2 3 4 5 6 7

7

6

5

4

3

2

1

𝐴𝑟𝑒𝑎 𝑜𝑓 𝑎 𝑡𝑟𝑖𝑎𝑛𝑔𝑙𝑒 =1

2∗ 𝑏𝑎𝑠𝑒 ∗ ℎ𝑒𝑖𝑔ℎ𝑡

1 2 3 4 5 6 7

7

6

5

4

3

2

1

c)

a) b)



Calculating Area of a Rectangle:

PRACTICE: Calculate the area of the shaded region

Interpreting Graphs:

7

6

5

4

3

2

1

1 2 3 4 5 6 7

7

6

5

4

3

2

1

1 2 3 4 5 6 7

𝐴𝑟𝑒𝑎 𝑜𝑓 𝑎 𝑟𝑒𝑐𝑡𝑎𝑛𝑔𝑙𝑒 = 𝑙𝑒𝑛𝑔𝑡ℎ ∗ 𝑤𝑖𝑑𝑡ℎ = 𝑏𝑎𝑠𝑒 ∗ ℎ𝑒𝑖𝑔ℎ𝑡



● Correlation is a relationship between two variables that allows us to ___________________ outcomes.

● Causation is a relationship where one event triggers another one.

Outside

Temperature

Ice Cream Sales

Wages

Education Police Officers

Crime



CONCEPT: PERCENTAGE AND DECIMAL REVIEW

PRACTICE: Convert these percentages to decimals:

50% = 1.25% = 120% = 5% =

31.34% = 12.5% = 0.5% = 100% =

PRACTICE: Convert these decimals to percentages:

0.34 = 0.61 = 0.06 =

0.4512 = 0.0004 = 1 =

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝐶ℎ𝑎𝑛𝑔𝑒 =𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑋

𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑋=

𝑁𝑒𝑤 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑋 − 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑋

𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑋

EXAMPLE: Last year, sales revenue totaled $550,000. Current year sales revenue increased to $800,000. Calculate the

percentage change in sales revenue.

PRACTICE: The price of Clutch Pizza was originally $12. Clutch decides that everyone deserves more pizza and lowers the

price to $10. Calculate the percentage change in the price of Clutch Pizza.

s

PERCENTAGE DECIMAL DECIMAL PERCENTAGE

- Identify the decimal point

• If no decimal point in number, it is implied at the end of the number

- Move the decimal point ___________ places to the left

- Identify the decimal point

• If no decimal point in number, it is implied at the end of the number

- Move the decimal point ___________ places to the right



CONCEPT: FRACTIONS REVIEW

Simplifying Fractions:

1. Find a common factor (both the numerator and denominator can divide by this number) and divide

2. Repeat step 1 until you can no longer find a common factor.

□ PROTIP: Most numbers are divisible by 2 or 3

□ PROTIP: If both numbers end in zero, you can eliminate both zeroes (i.e. common factor is 10)

PRACTICE: Simplify the following fractions

8

6=

120

140=

25

50=

9

36=

2100

140=

128

1024=

Comparing Fractions:

The easiest way to compare fractions is to divide and turn them into decimals!

PRACTICE: Circle the larger number.

3

4

4

5

46

15

13

4

2

17

3

29

25

40

60

96



MACROECONOMICS - CLUTCH CH. 1 - INTRODUCTION TO...

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