micro economics unit 1 and 2

Economics

Is the science of scarcity

Scarcity

We have unlimited wants but limited needs

Insatiable wants

An unending wanting for something that can never be fully satisfied, no matter how much is obtained

what are the four factors of production?

Land, Labor, Capital, Entrepenuirship

Land ( 4 factors of production)

All natural resources that are used to produce goods a=nd services ( water, sun, plants, animals)

Labor ( 4 factors of production)

Any effort a person devotes to a task for which that person is paid ( manual laborers, lawyers, doctors, teachers, waiters, etc)

Physical Capital ( 4 factors of production)

any human made resource that is used to create other goods and services( tools, Mach inter buildings, factories)

Human Capital ( 4 factors of production)

Any skills or knowledge gained by a worker through education and experience

Entrepenuirship ( 4 factors of production)

Ambitious leaders that combine the other factors of production to create goods and services

Profit

= revenue-costs

Trade-offs

All the alternatives that we give up when we make a choice

Opportunity cost

Most desirable alternative given up when you make a choice

Marginal analysis

Marginal= additional

Making decisions based on increments

Utility

Satisfaction/benefit/happies

Allocate

Distribute

Consumer goods

Created for direct consumption (pizza)

Capital goods

Created for indirect consumption (oven, blenders, knives, etc)

Production possibilities curve

Is a model that shows alternative ways that an economy can use its scarece resources

Productive efficiency

Products are being produced in the least costly way . This is any point on the production possibilities curve

Allocative Efficency

The products being produced are the ones most desired by society

Centrally planned economies ( communism)

The government owns all the resources ( land labor capital and Entrepenuirship) , answers the three economic questions

The three economic questions

What goods and service should be produced?

How should these goods and services be grouped?

Who consumes these goods and service?

Why do centrally planned economies face problems for poor-quality goods, shortages, and unhappy citizens?

Little incentive to work harder

Free market system (aka capitalism)

Little gov involvement in the economy ( laissez faire+ let it be) , individuals own resources and answer the threee economic questions

The invisible hand

The concept that society’s goals will be met as individuals seek their own self-interest

Mixed economies

A system with free markets but also some government intervention ( almost all countires, including the US have mine=xed economies)

Micro economics

Study of small economic units such as individuals, firms, and industires ( ex: supply and demand in specific markets, production costs, labor markets, etc)

Macro economics

Study of the large economy as a whole or economic aggregates ) ex: economic growth, government spending, inflations, unemployment, international trade etc)

Positive Statements

Based on facts. Avoids value judgements

Normative statements

Includes value judgements

Price

The amount of money paid for an economic good or service ( a gallon of gas has a price of $3)

Quantity

The amount of items ( if i buy a dozen eggs, then the quantity if 12 eggs)

Demand

Consumers willingness and ability to buy an item at a given price

Law of demand

The price of an item determines the quantity demanded

• the lower the price the higher the quantity demanded and vise versa

Rationale for law of demand

Income effect: when things are expensive, money buys less and when things are cheap money buys more

Substitution effect: when apples are expensive their substitutes are relatively cheap

Diminishingly marginal utility: each additional unit of an item purchased gives less marginal utility

D-E.T.R.I.P ( expectations)

Expectations of future price changes- buying a winter coat in summer bc its cheaper then in December

D-E.T.R.I.P ( Tastes and Preferences)

EX demand for dark chocolate increased bc people found it has health benefits

D-E.T.R.I.P ( Related goods/ complements and subtitles)

Price of peanut butter incread the demand for jelly decreases ( compliment)

If Kim y John’s raises their prices, people will start going to potbelly’s ( subs)

D-E.T.R.I.P ( income)

Normal goods: more income more steak

Inferior goods: more income less ramen

Increase in income led to buying more expensive goods

D-E.T.R.I.P ( population)

More people= more demand

Less people = less demand

Supply

Producers willingness and ability to sell a good/srvice

Law of supply

The price of an item determines the quantity supplied

Rationale for the law of supply

The law of increasing marginal costs : it is more costly to produce more output, therefore i must collect a higher price if i am going to produce more

S-T.I.N.G.E ( technology)

If new tech increase the productivity of any/all of the facrtors of production, suppliers, etc

S-T.I.N.G.E ( Input prices)

Changes in the price of any of the factors of production :.

If new tech increase the productivity of any/all of the factors of production, suppliers,

S-T.I.N.G.E ( number of producers)

As more producers enter the market, more product is supplies

As more producers leave the market, less product is supplies

S-T.I.N.G.E ( government action)

Business texes, regulation, subsidies ( money from gov)

S-T.I.N.G.E ( expectations)

If producers expect prices to rise in the future, then they supply less now and sell their goods at a higher future prices and vise versa