chapter 1-3 macro

Why do economics exist?

To deal with the scarcity of resources and human wants.

study of how countries use resources to satisfy their unlimited needs or the individual want/

scarcity

imbalance of unlimited human wants and limited resources

Opportunity cost

cost of making a choice. it’s the next best alternative, subjective.

marginal analysis

the way desicions are made (based on current knowledge, hence marginal.) about deciding costs and benefits. The outcome benefits will be higher than the opportunity cost. MB >>MC

Incentive

something that encourages a change of behavior. The raised price of chocolate is an incentive not to buy chocolate.

three fundamental questions of market capital system

what to produce — decided by costumer behavior

how to produce— firm decision

for whom to produce— aka income, quantity and market value of resources owned. dollar votes.

economics interactions

gains of trade

market move through equilbrium

resources used up efficiently

markets lead to equilibrium

government involvement

Trade

done when marginal benefits for both parties is greater than their marginal costs. This happens b/c of specilizations.

markets move toward equilbirum

equilibrium is state where there’s no change. markets stop moving when they can’t be better off than they already are.

resources

using resources as efficiently and every opportunity to better oneself. Operating efficiently means someone has to to be worse off.

equity

hard to measure. To have equity, we sacifice efficiency

as long as gains exist,

people will exploite them/

governments involvement to make markets competeitive

welfare of society

level of consumption and good people enjoy

standard of living

cost of living

dollar amount of goods and services for a standard of living

economics flutations

rise of fall of production in the economy. the business cycle.

recession and expansion + unemployment and inflation

another person’s spending is another person’s income

a person spending on a good causes income of the reproducing the good increases

trade off

comparison of costs and benefits.

Positive economics

objective statements that can be proven right or wrong

normative economics

determining desirabilities of outcome based on valued judgement. Ex: should taxes be lowered to raise consumer spending to get out of a resession?

slope of ppc

= the oppertunity cost of horizontial axes.

rise/ run = a/b = opportunity cost of b

allocative economy

prioritize goods that consumers want in correct quanity. market capital economy may not achieve this.

differing abilities in producing various goods & services in that country.

specialization

Types of resources

Land is the bounty of the Earth: includes natural resources such as oil, coal, minerals, etc.

Labor includes both physical and mental human effort

Capital are the tools, equipment, and factories

Human capital is the educational achievements and skills of the labor force (which increase labor productivity).

Entreprenurship is the ability to organize resources & take risks to develop new ways of production and new products.

Technology

knowledge of how to poduce goods and services

When resources are specialized..

the opportunity cost becomes bigger.

why is a country ppc curved?

Because of the oppertunity cost is bigger due to specialization

a ppc curve going outward right?

means increases in resources and tech improved standard of living, The position is depedent on the country’s resources and tech

If technology only improves for one good (a new fishing technique increases the catch with same amount of ships) then the PPF will shift out from that axis only.

this does not mean we can only produce more of that good. it frees up more resources to put into other goods