Microeconomics Chapter One

Scarcity

When society has limited resources and therefore cannot produce all the goods/services that many people wish to have.

Economics

The study of how humans decide to make decisions in the face of scarcity then features how society then chooses to allocate those scarce resources.

Microeconomics deals with:

Consumer Behavior, Firm decisions, Market prices, individual choices, and supply/demand. Many studies involve individual consumer, firms, as well as markets.

Macroeconomics

Inflation, unemployment, economic growth, national income, aggregate demand. Studies the economy as an entire whole, including growth, and some national income.

Tradeoffs

The act of giving up one benefit or item in order to receive another.

Opportunity cost

The true cost of something is what you end up giving up in order to get it. Otherwise also known as the highest valued alternative when choosing to make a certain sacrifice.

Rational

People systematically try to do their best in order to achieve goals given by available opportunities.

Marginal thinking

When rational decisions end up weighing the incremental benefits vs. the costs.

marginal benefit

The additional gain from one more unit of an activity.

marginal cost

The additional cost of one more unit of an activity.

Incentives

People respond predictably to changes in costs as well as benefits.

Markets

Efficiently choose to organize how economic activity is measured through prices.

Government role

Can sometimes improve market outcomes and efficiency.

Normative statements

Are prescriptive claims about how the world should be. (Think of it as like the opinion of what should be).

Positive statements

The descriptive claims about how the world actually is. (Think of it as a testable claim about what is/a type of relationship).

Model

A simplified representation of how two or more variables interact. Models strip complexity to help reveal what is the most important.

Hypothesis

A statement about the relationship between economic variables that are measurable quantities that can then take on different values.

Casual relationships

How a change in one variable can then change the other.

What Dual Role are Scientists?

Understanding that they are scientists as well as policy advisors.

What are the two statement types?

Normative as well as positive.

Factor Market (Inputs)

What factors use for production. For example, the land, labor, capital. Known as the firms mainly. Only consumers buy to then achieve the final good/service. Examples include: A job hiring workers, bakery buying wholesale items.

Product Market (Outputs)

What is being sold is the final goods. Many consumers end up buying them as well as households. Some examples include like buying a pizza, paying for a movie ticket, etc.

Who are the factor market?

Households own the labor as well as factors to production.

Who is the product market?

The Firms that provide the final goods. Like items the households want to buy.