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Economics
a social science concerned with the efficient use of scarce resources to satisfy unlimited wants
Scarcity
Limited supply of something
Rational Self-Interest Theory
people make decisions based on what gives them the greatest amount of satisfaction
marginal benefits
additional benefits
marginal cost
additional cost
Economic Methodology
economist uses two approaches to examine economic topics
Induction
facts to theory
deduction
theory to facts
Theory
economist use models/theories because they are simplifications of reality ( understand how the world works )
cetius peribus
all other things remain constant (allows us to focus on certain variables)
policy economics
the use of economic principles to help solve political, social, and economic problems
economic growth
the ability of the economy to increase the production of goods and services
Macroeconomics
the study of the economy as a whole
Microeconomics
the study of the economy at the level of individuals
Positive Economic Analysis
analysis based on facts
normative economic analysis
analysis based on value judgements
fallacy of composition
the mistaken assumption that what applies in the case of one applies to the case of many
association as causation
the mistaken assumption that because two events seem to occur together, one causes the other
The fundamental problem of economics is
unlimited wants vs limited resources
labor
human effort
Land/Natural Resources
consist of land for farming
Economic Capital
machinery and factories
Financial Capital
consists of bonds, stocks, and cash
Entrepreneur
they take the three other productive resources and produce goods and services
labor receives
wages
land receives
rent
capital receives
interest
Entrepreneur receives
profits
Relative Scarcity
The four factors of production are all scarce or limited in supply
Four characteristics for efficient use of resources
full employment, production efficiency, allocation efficiency, distribution efficiency
oppurtunity cost
The highest-valued alternative that must be given up to engage in an activity.
production possibility curve
an economic model which shows the various amounts of 2 goods that an economy can produce with full employment and fixed technology
Market
brings buyers and sellers to exchange goods and services
Demand (buyers)
The amount of a good or service that people are both willing and able to buy.
Law of Demand
price and quantity demanded are inversely related
Law of supply
price and quantity supplied are directly related
change in quantity demand
a move along a given demand curve for a commodity as a result of a change in price
change in demand
a shift of the demand curve
Four determinates of demand
income, population size, taste, expectations about future prices
Supply (sellers)
the amount of a good/service that producers are willing and able to offer for sale at each possible price
Cost determinates
Technology/productivity and price of resource
Market Equillibrium
a situation in which quantity demanded equals quantity supplied
Note
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