Econ Unit 1 pt 1s

scarcity

how people use their limited resources to satisfy their unlimited wants.

Adam Smith

British economic/philosopher

Father of Economics

Wrote: The Wealth of Nations

Invented: invisible hand

Invisible Hand

• competition and self interest regulate and impact a free market economy

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Economists

• are social scientists who use the scientific method to answer questions about human behaviour. (use data to answer questions and masks predictions)

Economics

study of human behaviour when faced with scarcity (people use limited resources to satisfy unlimited wants and needs)

4 principles of Economic Thinking

• Cost-Benefit Principle

• Opportunity Cost Principle

• Interdependence Principle

• Marginal Principle

Microeconomics

study of individual economies and their implications for specific markets.

study of economic decisions making by individuals, households, and buisnesses

e.g. a single tree/one family making decision to purchase a car, Wendy serving breakfast

Macroeconomics

study of broad economy, such as how an economy grows and how growth is maintained. Study of economy as a whole, e.g. government issuing stimulus checks, banks adjusting interest rate, etc.

e.g. a forest

2 types of economics study

positive and normative

Positive Economics

• objective or scientific attempt to describe or explain economic behavior.

  • factual,

  • study of how the economy is or was.

Normative Economics

• evaluating or judging economic decisions based on a set of values or beliefs.

  • Subjective (opinion based)

  • how the economy should be or ought to be.

Cost vs Benefit

• weighing the advantages and disadvantages of a choice.

• the best choose is when the benefit outweighs the cost.

Cost-Benefit Principle

• maximise your benefits (utility),

• pursue that choice, only if the benefits are at least as large as the costs.

Utility

the total satisfaction received from a choice.

Opportunity cost

the value of the next best alternative that you gave up.

Opportunity Cost Principle

the opportunity cost is reflected in your ultimate decision.

Trade-offs

• all the items that are not chosen when making an economic decisions

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Incentives Mattter

if incentives, change, behaviour and final decision might change.

Incentives

factors that influence a person’s behaviour. something that motivates a person to act in a particular away

Marginal Principle

additional benefit vs additional cost of consuming an additional unit of the same item

Interdependence Principle/Future Consequences Count

when considering an external factors, if the external factors change. Decisions today don’t only affect things today or tomorrow.

Resources

any input to the production of goods and services. Land, Labor, Capital, Technology.

Economic Enigma

puzzles or riddles that might be explained through economic analysis.

Specialization

doing one job/task very well.

Benefits of specialzation

specalization saves time,

increases worker productivity

leads to thee development of specialized tools/innovations that help increase productivity,

specialisation leads to the creation of more complex items.

Division of labour

• alowed by specializing,

• breaking up production into specialised departments for increased productivity.

• Helped spark the industrial revolution too.

absolute advantage

when someone can produce a good or service using fewer resources someone else.

Comparative Labour

when someone can produce a good or service at a lower opportunity cost thank someone else.

specialisation vs non specialiszation

when people specialize they need to trade with others to get their other needs met. They cant produce everything because it is inefficient, so trade makes us better off.

Voluntry exchange

people enter into exchanges because they know they will benefit from it

Barter system

where goods are exchanged directly for other goods

requires a coincidence of wants (someone has what you want and you have what someone wants.

Economic Interdependence

Depending on other people or countries to have the goods you do not create yourself

Trade Barriers

things that hinder/stop the trade between people or countries which force self-sufficiency (make all the goods yourself, economic independent)

Positives of Trade

• raises standard of living,

• generates wealth in three ways

  • Moves goods tho those who value them

  • increases number and variety of goods

  • Lowers cost of goods

    • opens to larger markets - allowing for mass production (cheaper products from different markets)

Negative of trade

• areas with better comparative advantages can put others out of business

  • Loss of jobs

  • Forces people to gain new skills and abilities which makes them more marketable (can also be a positive) - marketable = item is in demand and can be easily ought or sold in a market at a fair price.

other goes over

when calculating comparative advantage