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What’s Economics?
Social science that studies how huma being use their limited resources to satisfy their infinite needs and wants
What’s Microeconomics?
Deals with smaller economic agents (ex. households, and producer in individual market/ businesses.
Why do Microeconomics people look at the choice they make in respond to change in a dynamic world?
To improve economic well-being/ improve efficiency
What are the Microeconomic questions?
What to produce, how to produce, and how much
What’s Macroeconomics?
Looks at the factor that affect the economy as a whole
What are the key concepts of Macroeconomics?
WISE ChoICES (Well-being, Interdependence, Scarcity, Efficiency, Choice, Intervention, Change, Equity & Sustainability)
What’s Scarcity?
Limited supply of resources compared to the unlimited demand for goods and services in society
What does economics focus on? (Scarcity)
Focus on how to effectively utilize limited resources to fulfill the unlimited needs and wants of people
Whats Choice?
Choices must be made (bc there arent enough resources to fulfill everybody’s needs), and whenever a choice is made opportunity arises.
Whats Efficiency?
Getting the most out of resources available. Max productivity, min costs, and avoid unnecessary waste.
Why is Efficiency crucial in economics?
Allows for the effective allocation of resources leading to higher production, greater economic output, and improved overall economic performance.
What’s allocative efficiency?
Scarce resources are put to their best possible use in producing goods and services in optimal combinations for society.
What’s equity?
Is the normative concept of fairness. Inequity (inequality), refer to how income wealth or even opportunity is disturbed in society.
What’s Economic well-being?
Levels of prosperity, economic satisfaction and standard of living among members of society.
What does economic well-being include?
Security with respect to income and wealth, having a job & income. The ability to pursue one’s goals, work productively and develop one’s potential.
What’s Sustainability?
Ability of present generations to meet its needs without compromising future needs.
What’s considered to be a problem in sustainability? (Economics)
Present generation begins to degrades and destroys the environment overtime (by engaging in many econ activities that are harmful)
What’s Change?
Economic world is in a state of constant change and have to adapt our way of thinking accordingly.
Why is change an important concept in economic theory and in the empirical evidence from the real world?
Change is relevant to economic variables and from one situation to another.
Our economic world is subject to profound and continous economic change that occurs in?
technologies, institutions, and societies, as well as structural change.
What’s interdependence?
The more groups (consumers) interact, the more they are independent. Economic world is interdependent, and decisions made by economic actors can cause many unintended consequences for other economic actors.
What’s intervention?
Government involvement in the workings market.
What happens when markets fail?
There will be room for government intervention
What are the 4 factors of production?
Land, Labour, Capital, & Entrepreneurship
What’s considered to be ‘Land’?
Natural resources used in production process (ex. oil, coal, wood, & metal ores).
Whats considered to be ‘Labour’?
Human resources required in the production process (ex. accountant, barista, chef, doctor, and etc).
Whats considered ‘Capital’?
Non natural products used in the production of machinery tools. Used to facilitate production. (ex. machinery, computers, trucks, and etc).
What’s Enterprise?
Skills. creativity, and risk taking ability that a business person requires to successfully combine and manage the other three factors of production
Whats an Opportunity cost?
Value of next best alt sacrificed.
What would happen if resources were limited?
No sacrifices would be necessary and opportunity cost of producing any goods and service would be 0.
What are the 3 economic system?
Free Market economy, Planned economy, and mixed economy.
What’s Planned economy?
Economic decisions made by government. What, how, and whom to produce controlled by government. No private property. Government decides what goods to produce based on what they think society needs. Government planners decide how all resources are to be used and where people should work. Government decides how to distribute the produced goods and services. Everybody works for the government.
What’s Free Market Economy?
All economics decisions are made by consumers and producers through the price mechanism. Resources are owned privately by people and firms. Consumers drive the market with their demand. Higj prices are the signal that are telling firms that the product is in high demand. Firms and profit driven so they produce goods that will maximize their profit.
What does PPC stand for?
Production Possibilities curve model.
What’s PPC?
A curve that is showing the maximum combination of two types of output that can be produced in an economy if all resources are used efficiently and that state of the technology is fixed.
What are the assumptions of PPC model?
Economy produces 2 goods. Resources and the economy is fixed. All resources in the economy is fully employed.
What’re the requirements for the economy to produce the greatest possible output? (PPC)
All resources must be fully employed. All resources must be used efficiently.
What are the key economics in the PPC model?
Scarcity, Choice, & Efficiency
How would the graph look like if it has constant opportunity cost?
Straight linear line declining
How would the graph look like if it had increasing opportunity cost?
It would form a curve
What’s ‘Increasing Opportunity cost’?
PPC would be concave down decreasing because the opportunity cost increases as more and more of X is produced.
Whats ‘Actual growth’ in the PPC graph?
Involves movement from one point inside the PPC to another point closer to the PPC. Caused by reduction in unemployment and increases in efficiency in production.
What’s ‘Growth in the production possibilities’?
Outward shift of the PPC, caused by increase in education system, technological and quantity of resources.
What could cause ‘Decrease in the production possibilities?
Wars, epidemics and natural disasters/ any events that would have a negative effect on all factors of production.
What’s the circular flow of income?
Illustrated the interdependence that exists between key economic decision makers.
What does circular flow of income provide?
Simplified representation of the interactions between households, businesses (firms), and the government in the economy
What’s two sector circular flow (closed system)?
Assumes household are the owners of the factor of production and they are the people who buy the nation’s output of goods and service.
How many sectors are involved in Open circular flow?
Five sectors involved.
What’s injections in ‘circular flow of income’?
What would happen if injections is greater > than leakages?
Size of flow increases
What would happen if injections are smaller < than leakages?
Size of flow shrinks
What does positive economics statement try to describe, explain and predict?
economic events
What statements do positive economics statement use?
Positive statements
What are ‘positive statements’ in positive economics statement?
Things that exists, happened in the past, or will happen in the future. Focuses on objective analysis of real world data/facts.
How do positive economics statement explain or predict events?
Using hypothesis, theories, and models
What’s the definition of positive statement?
A statement of facts, that can be proven right or wrong.
What are the characteristics of positive statements?
Describe something (with numbers), Statements in a hypothesis that explains smth, and statements that predict future events.
What’s normative economics?
Other way of thinking deals with how things in the economy should or ought to be.
What beliefs and values is normative economics based off?
Beliefs or values judgements about what should happen, about what is good or bad, about what is right or wrong.
Where is normative economics used in?
Making economics policies
What’s Ceteris Paribus?
All things equal (all things are assumed to be constant)
Law of Diminishing Marginal Utility
When firms add more factors to fixed factors that would eventually increase efficiency. Efficiency would fall overtime if the fixed factor is still being added due to the relationship between labor and capital.
P.T.I.D.E
P (Price of Related goods), T (Taste and Preference), I (Income), D (Demographics), E (Expectation of changes in income/ price).
C.P.P.S.E
C (COP), P (Number of Producers), P (Price of related good), S (, E (Expectations)
Joint Supply
Produced through the same by product of the other good. (e.g. cow: meat and leather)
Competitive Supply
When the 2 goods used the same FOP.
Supply Shock
Supply of agricultural products would decrease.
If producers expect the price to decrease in the future they will___
increase supply now so they would get the most profit
Explain how equilibrium is achieved
As price goes up demand will shift to the right, and thus it will cause shortage. Afterwards there will be an increase in price (shortage decreases). When price hits P1, there will be no shortage. Afterwards there will also be a decrease in QD.
S.N.I.T
S (Substitutes), N (Nature of the product (addictive or not), I (Proportion of income), T (Time (longer time more inelastic).
