Ch. 1: Intro to Economic Way of Thinking

economics

the study of how society chooses to allocate its scarce resources to the production of goods and services

• “science of choice”

scarcity

the condition in which human wants are forever greater than the available supply of time, goods, and resources

• common

• more you have = more you want

macroeconomics

the branch of econ that studies decision making for the economy as a whole

• global

• ex: gov

microeconomics

the branch of econ that studies decision making by a single individual, household, firm, industry, or level of gov

• individual

• ex: when do households buy more chicken than beef?

3 basic economic questions

1. what to produce?

2. who to produce it for?

3. how to produce it?

what to produce

• requires that an economy decide the mix and quantity of the goods and services it’ll produce

• should have something to do with natural resources

• ex: fish farm —> move to coast

who to produce for

• concerns how economic pie is divided

• need target audience

• ex: guava candy won’t sell as well in the US vs China

how to produce

• how to mix existing tech and resources to produce these goods

• can you do it?

• oversaturated market - what makes you stand out

resources

the basic categories of inputs used to produce goods and services, aka factors of production

• divided into 3 categories: land, labor, capital

LLC

• land

• labor

• capital

• NOT mutually exclusive, very dynamic

land

any natural resource provided by nature that is used to produce a good or service

• ex: forests, gold, diamonds, oil, coal, wind, the ocean

labor

the mental and physical capacity of workers to produce the goods and services

• ex: talking to a client

capital

a human-made good used to produce other goods and services

• ex: physical plants, machinery, equipment, roads, bridges

entrpreneurship

the creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products

• ex: Jeff Besos

bankruptcy

• allows you to fail

• many entrepreneurs fail and try again

• persistence is key

models

a simplified description of reality used to understand and predict the relationship between variables

• if this, then that

• next logical steps

• branch models: sometimes both bad options

ceteris paribus

a Latin phrase that means while certain variables change, “all other things remain unchanged”

positive economics

an analysis limited to statements about “what is” that can be tested and determined to be true or false (i know exactly how many)

normative economics

an analysis based on subjective value judgements regarding “what ought to be” that cannot be tested