W1 :intro to economics

week 1 concepts

oppurtunity cost

not only cost of what we are paying but the cost of what we are giving up

in economics we assume that people behave rationally

economics is based on the thought that people make rational decisions

market economy

markets find equilibrium themselves

planned economy

usually lead to shortages

voluntary exchange

price vs value → price we pay reflects the value we put to the item

factors of production

land( non manmade resources), labor( workers)& capital ( what we use 4 production)

circular flow of economy

demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products. In short, an economy is an endless circular flow of money.

efficency Vs equality

efficency - increases well being, Equality - equal decisions, ideal to have both

trade can..

make everyone better off - not a zero sum game trade between countries will make both countries better off

production possibilities frontier

illustration of both the opportunity cost and optimal allocation of resources