The National Economy - The scope of macroeconomics

9 important questions on The National Economy - The scope of macroeconomics

What is a Pareto improvement?

When changes in combination of goods produced or consumed, or changes in the combination of inputs used, and if such changes benefited some people without anyone else being made worse off. 

What is the Pareto optimally? 

When all Pareto improvements have been made and when any additional changes in the economy would benefit some people only by making others worse off. 

In what way can the government not contribute to the Pareto optimally? 

When the governments redistributes income, the rich people lose to the poor. The rich will be worse off and therefore there's no Pareto optimally. 
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What is allocative efficiency (simple formulation)?

The rational economic behaviour states that a person should expand or contract the level of any activity until its marginal benefit is equal to its marginal cost. 

When will private efficiency result in social efficiency? Name 2 circumstances. 

1. Perfect competition
2. No externalities (for example pollution)

When is the consumer surplus maximised?

When the Marginal Utility (MU) equals P (price) and D (demand) 

Give the formula for calculating Total Producer Surplus (TPS)

TPS = TR - TVC 
Total Producer Surplus = Total Revenue - Total Variable Costs
TPS = TR + TFC
Total Producer Surplus = Total Revenue + Total Fixed Costs

What happens when the marginal utility (MU) goes up? 

This leads to an increase in consumption (C) --> this will create a shortage --> Therefore the market price (P) will rise --> the price will be above (social) cost of production --> the production of the firms will increase because of the higher demand --> the marginal cost will rise 

What are the 4 main objectives of macroeconomics? 

1. Economic growth
2. Unemployment
3. Inflation
4. Balance of payments and exchange rates 

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