Intro to Economics (non micro/macro specific)

economics

Social Science concerned with the efficient usage of scare resources to achieve economics wants

Categories of Economic resources

Land, Labor, Capital, Entrepreneurial

Land

natural resource involved in production

Labor

Human effort involved in production

Capital

Man made object involved in production

entrepreneurial ability

innovative process of creation and risk taking

Scarcity & Choice

Resources are limited forcing individuals and firms to make choices

Utility

humans act in order to maximize satisfaction

self interest

assumption that individuals act to maximize their personal benefit

Marginal analysis

Marginal cost vs marginal benefit

Other things equal assumption

assumption that non focus factors remain constant

Microecnomics

Concerned with decision making of individuals, households, and firms

Macroecnomics

Examines the economy as a whole and aggregate variables.

Positive economics

Focused on facts and cause and effect relationships, establishes scientific statements

Normative economics

Incorporates value judgements about what economy should be like

Economizing Problem

The need to make choices, as wants exceed economics means

Budget Line

Graphical display of goods a consumer is able to purchase with a specific income

Production possibility curve

Combination of goods and services that can be produced with a given set of resources

Optimal allocation

MB=MC

opportunity cost

the cost of forgoing a choice

Law of increasing opportunity cost

as more of one good is produced less of another can be produced.

Laissez-Fare capitalism

very limited government role

Command system

Government owns most resources. economic decision making set by central planning

The market system

Used by vast majority of world’s economy. Private ownership of resources. mixture of centralized and decentralized action.

Private property

ownership of private property plays a large role in market system. includes the right to negotiate contracts and use resources as seen fit.

Freedom of enterprise

Firms are free to use resources to produce their choice of goods in their chosen market.

Competition

2 or more buyers or sellers acting in a market with freedom to enter and exit market.

specialization

devoting resources to produce one or few goods.

division of labor

divide labor force to specialize and maximize outputs

Geographic specialization

production that optimally aligns with local geographic factors

5 fundamental questions

-What will be produces
-how will it be produced
-who will receive the output

-how will the system change

-how will the system promote technological advancement

The invisible hand

firms seeking to further their self interest in a competitive market will be guided in favor of public interest

Demise of command system

coordinating and incentive problem

circular flow model

the dynamic market creates a continuous and repetitive flow of goods, resources, and currency.

circular flow model (image)

households

buy goods and obtain income by selling resources

businesses

sell goods and services to obtain revenue. Purchase resources to produce goods.

Product market

households purchase goods and money spent goes to businesses.

Resource market

households sell resources to businesses in order to produce goods.

Risk

the market system creates risk. owners subject to risk and are residuals claimant.

Benefits of limiting risk

-attracting inputs

-focusing attention

creative destruction

new advanced products outcompete an outdated product