Economics Chapter 1

What is economics?

How people make the best decisons with limited resources

What is Microeconomics?

Study of decision making of the INDIVIDUAL within a market or economy.

Focuses on decisions and outcomes for: the household, firms, and market (how firms and households interact)

What are assumptions in an economic theory

Variables/characteristics in a theory that are unchanging in order to simplify analysis. Something that isn’t immediately factored in on a decision (cause may not matter right not or at all)

Ceteris paribus

“All things constant.” Device used to analyze relationship between 2 variables while the values of other characteristics are unchanged.

Aka, simply things to make it less complicated

3 C’s of modeling

C- Coincidence

C- Correlation: related but dunno how

C- Causation: related and know how

How is the type of market determined?

Who owns economic resources, how economic resources are distributed, and what signals determine successful outcome

Types of markets

-Command/centralized

-Private

-Public/social

Private market characteristics

Who owns economic resources: private individual or group

How economic resources are distributed: According to wants and needs of individuals in this market

What signals determine successful outcome: Willingness to pay, ability to pay, ability to produce

How are successful outcomes measured: measured for individual agents (can individual maximize their own benefit)

Market Mechanism

Ability for price to change dependent on consumer/producer behavior.

Public/social market characteristics

Who owns economic resources: public

How economic resources are distributed: By maximizing distribution for minimum costs

What signals determine successful outcomes: accessibility or use

How are successful outcomes measured: the effect of accessibility or use on population outside of market

Command/centralized market characteristics

Who owns economic resources: centralized government or power

How economic resources are distributed: Decided by ^

What signals determine successful outcomes: Signals determined by centralized gov

How are successful outcomes measured: outside of market (supply/demand) and determined by centralized power (always success or fail, not profit)

-EX: postal service and armed forces

Do products/goods exist only in one kind of market?

Products or goods can exist within MULTIPLE TYPES of markets