ECO1011S 2023 Notes
UNIT 9:
Macroeconomics vs. Microeconomics:
Macroeconomics is concerned with the overall economy, both nationally and globally. It is
interested in indicators and aggregates such as unemployment, interest rates, economic
growth (GDP), exchange rates, CPI, etc. It is therefore also interested in government policy.
However, it looks at the impact of policy on macroeconomic concerns, such as economic
growth and unemployment. FOCUS IS PLACED ON THE BIGGER PICTURE.
Microeconomics concerns itself with how consumers (individuals) and producers (firms)
make choices. It is also interested in how these two groups interact in the market, and the
impact their interactions have on prices, quantity, and distribution. It is also interested in
government and the impact of policy of these two groups. FOCUS IS PLACED ON THE
SMALLER DETAILS.
Labour market model:
The aim or purpose of the model:
The model aims to determine 3 primary things:
1. Wages
2. Employment (and unemployment)
3. Distribution of income.
The model makes a few assumptions:
• We look at price-setting firms,
• selling differentiated products (Unit 7),
• and a large number of identical workers who may be employed by the firms
for the same wage set by the firm (as studied in Unit 6).
• We consider the simple case
• the only input to production is labour, and the only cost is the wage,
• and profits are determined by the following three things
1) the nominal wage,
, 2) the price of goods being sold
3) the average product of workers
Before we proceed, we establish a few important links from previous Units 6 and 7
(ECO1010F/ECO1101F):
In every economy there are producers (firms) and consumers (customers):
• Firms provide goods and services to households (consumers).
• The amount of goods provided to households depends on a few things, such as the quality of
the goods and the need for the goods, but one of the most important aspects to focus on is the
price of the good.
• The price of the goods plays a huge role in this process. Firm’s don’t just want to sell any
quantity or sell as much as possible, Firms want to sell the perfect amount to ensure that they
can maximizie profits.
• This is where Unit 7 fits in à Unit 7 tells us the best possible price and quantity combination
for firms to produce at (remember the tangency point for profit maximization? Demand curve
is tangent to isoprofit curve)
• Looking further we see that for firms to actually produce in the first place, they require
workers. These workers come from the households. This introduces us to an interesting
dynamic because firms sell goods to households, but in turn we see that households sell their
labour to firms (one of the four factors of production). This is where unit 6 comes in, taking
the employer (firm) and employee relationship and including this into our model as well.
• The point of this section is to emphasize that Firms are linked to households in two ways,
through the employee relationship and through the customer relationship
, What can be taken away from is the following:
• Firms want to provide goods and services and make profits. Firms however need people to
produce goods and services.
• Consumers want to consume goods and services and gain satisfaction. But they need firms to
work for, so they can have an income and purchase goods and services
• Therefore, the story can be summarized as this: People look for work to get an income! Firms
look for people to produce goods! When a firm wants to hire people, this hiring decision
depends on how much they should produce! How much they produce depends on how many
goods they are able to sell! How much they are able to sell is dependent on the price (which
comes from the demand curve)
Which department within the firm is responsible for the different components in this
process?
Now that we’ve discussed where the Labour Market fits in with our syllabus, lets turn
to the labour market itself:
Working-age
Population
15-64 years
31.3 million
Not
Labour Force Economically
active
17.1 million
14.2 million
Discouraged Not available
Employed Unemployed
workers to work
12.8 million 4.3 million
1.8 million 12.4 million
UNIT 9:
Macroeconomics vs. Microeconomics:
Macroeconomics is concerned with the overall economy, both nationally and globally. It is
interested in indicators and aggregates such as unemployment, interest rates, economic
growth (GDP), exchange rates, CPI, etc. It is therefore also interested in government policy.
However, it looks at the impact of policy on macroeconomic concerns, such as economic
growth and unemployment. FOCUS IS PLACED ON THE BIGGER PICTURE.
Microeconomics concerns itself with how consumers (individuals) and producers (firms)
make choices. It is also interested in how these two groups interact in the market, and the
impact their interactions have on prices, quantity, and distribution. It is also interested in
government and the impact of policy of these two groups. FOCUS IS PLACED ON THE
SMALLER DETAILS.
Labour market model:
The aim or purpose of the model:
The model aims to determine 3 primary things:
1. Wages
2. Employment (and unemployment)
3. Distribution of income.
The model makes a few assumptions:
• We look at price-setting firms,
• selling differentiated products (Unit 7),
• and a large number of identical workers who may be employed by the firms
for the same wage set by the firm (as studied in Unit 6).
• We consider the simple case
• the only input to production is labour, and the only cost is the wage,
• and profits are determined by the following three things
1) the nominal wage,
, 2) the price of goods being sold
3) the average product of workers
Before we proceed, we establish a few important links from previous Units 6 and 7
(ECO1010F/ECO1101F):
In every economy there are producers (firms) and consumers (customers):
• Firms provide goods and services to households (consumers).
• The amount of goods provided to households depends on a few things, such as the quality of
the goods and the need for the goods, but one of the most important aspects to focus on is the
price of the good.
• The price of the goods plays a huge role in this process. Firm’s don’t just want to sell any
quantity or sell as much as possible, Firms want to sell the perfect amount to ensure that they
can maximizie profits.
• This is where Unit 7 fits in à Unit 7 tells us the best possible price and quantity combination
for firms to produce at (remember the tangency point for profit maximization? Demand curve
is tangent to isoprofit curve)
• Looking further we see that for firms to actually produce in the first place, they require
workers. These workers come from the households. This introduces us to an interesting
dynamic because firms sell goods to households, but in turn we see that households sell their
labour to firms (one of the four factors of production). This is where unit 6 comes in, taking
the employer (firm) and employee relationship and including this into our model as well.
• The point of this section is to emphasize that Firms are linked to households in two ways,
through the employee relationship and through the customer relationship
, What can be taken away from is the following:
• Firms want to provide goods and services and make profits. Firms however need people to
produce goods and services.
• Consumers want to consume goods and services and gain satisfaction. But they need firms to
work for, so they can have an income and purchase goods and services
• Therefore, the story can be summarized as this: People look for work to get an income! Firms
look for people to produce goods! When a firm wants to hire people, this hiring decision
depends on how much they should produce! How much they produce depends on how many
goods they are able to sell! How much they are able to sell is dependent on the price (which
comes from the demand curve)
Which department within the firm is responsible for the different components in this
process?
Now that we’ve discussed where the Labour Market fits in with our syllabus, lets turn
to the labour market itself:
Working-age
Population
15-64 years
31.3 million
Not
Labour Force Economically
active
17.1 million
14.2 million
Discouraged Not available
Employed Unemployed
workers to work
12.8 million 4.3 million
1.8 million 12.4 million
