Econ

Economics

the Study of Choices that Arise from Scarcity

Positive Analysis

What Is, Descriptive, Factual and Feasible, "Value-Free", causative (If X happens, then Y) (True or False)

Normative Analysis:

What ought to be, Prescriptive, Subjective, Not Causative (Might Not be Feasible)

Micro

individual decision making due to scarcity (what to buy, firms, markets)

Macro

economy as a whole, government policy decision due to scarcity, aggregate economic variables (GDP, employment, inflation)

The Law of Increasing Cost:

As production of a good is increased, the opportunity costs of additional units of that good will also increase, as long as resources used in production are specialized.

The Principle of Comparative Advantage:

Each party to a trade should specialize in the production of that good in which it is relatively more efficient (low opportunity cost)

Absolute advantage

when one party has a lower resource cost than another

Comparative advantage

when one party has a lower opportunity cost than another

Terms of trade

The rate at which both parties would be willing to make a trade. The terms of trade depend on opportunity costs.

PPC: Production Possibilities Curve:

shows all of the combinations that can be

produced without trade, or if a party is self-sufficient and only consumes what it produces on its own.

CPC: Consumption Possibilities Curve

shows all of the combinations that can be consumed through trade

consumed through trade

If the CPC lies above the PPC, then trade is beneficial.

Market

a collection of buyers and sellers where exchange takes place. Markets have

three characteristics; they are defined over a geographic space, a product space, and a

time period.

The Demand Curve:

a model that shows the quantity of output that consumers in a market are willing and able to purchase at different prices, ceteris paribus.

Law of Demand

Demand is an inverse relationship between price and quantity (price goes up, demand goes down. Quantity goes down, demand goes up)

Equilibrium

occurs at the intersection of the supply and demand curves (supply curve is straight down the Y-Axis)

Increase in Supply

Goes Right

The three types of economic systems

traditional economies, command and control economies, and market economies.