Microeconomics

“The study of the choices that individuals and businesses make and the way these choices respond to incentives, interact, and are influenced by governments.” Example Questions: Why are more people buying SUVs and fewer people buying minivans? How will the cut in price of the Sony PlayStation and Microsoft Xbox affect quantities of these items that people buy?

Microeconomics is about Buying decisions of the individual Buying and selling decisions of the firm The determination of prices in the market The quantity, quality and variety of products Profits Consumers Satisfaction

Microeconomics 3 major Questions: The economic choices that individuals, businesses, and governments make and the interactions of those choices answer the following three questions: What? How? For whom?

What goods and services get produced and in what quantities? Goods and services are objects that people value and produce to satisfy human wants. Examples? Questions to ask: What determines the quantities of corn we grow, home we build, DVDs to produce?

How are goods and services produced? One farmer in France hand picks each grape that is then used to produce the wine he sells around the world. Another farmer in California uses a huge machine, during the same job as 100 French farmers, to pick his grapes for the wine he sells around the world. Why do we use machines in some cases and people in others? Do machines help or hurt jobs?

For whom are goods and services produced? The answer depends on the incomes that people earn and the prices they pay for the goods and services they buy. Microeconomics explains how the economic choices that individuals, businesses, and governments make and the interaction of those choices end up determining what, how, and for whom goods and services get produced.

Macroeconomics “The study of the aggregate (or total) effects on the national economy and the global economy of the choices individuals, businesses, and governments make.” Example Questions: Why did production and jobs expand so rapidly in the United States in the 1990s? Why did the Federal Reserve cut interest rates during 2001?