M1 - Overview of Introductory Economics

Economics

It is an inquiry into the nature and causes of the wealth of the nations.

Adam Smith

according to ___, Economics is an inquiry into the nature and causes of the wealth of the nations.

Economics

it is the study of man in the ordinary business of life

Alfred Marshall

according to __, Economics is the study of man in the ordinary business of life

Economics

is the study of how society manages its scarce resources

How people decide how much to work, save, and spend, and what to buy.

studying economics includes (1)

How firms decide how much to produce, how many workers to hire.

studying economics includes (2)

How society decides to divide its national resources

studying economics includes (3)

How People make decision

1st category on ten principles of economics

How People Interact with each other

2nd category on ten principles of economics

How the Economy works as a whole

3rd category on ten principles of economics

People face trade-offs, The cost of something is what you give up to get it, Rational people think at the margin, People respond to incentive.

4 principles under the category “How people make decision“

Trade can make everyone better, Markets are usually a good way to organize economic activity, Government can sometimes improve market outcomes

3 principles under the category “How people interact with each other.“

A country’s standard of living depends on its ability to produce goods and services, Prices rise when the government prints too much money, Society faces a short-run tradeoff between inflation and unemployment.

3 principles under the category “How the economy works as a whole“

There ain’t no such thing as a free lunch

an economic quote that says, “To get something that we like, we usually have to give up something else that we also like

increases

as income increases, tax ___

Scarcity

the limited nature of society’s resources

oikonomos, one who manages a household

Economy: comes from the Greek word ___, which means “___.”

Efficiency

the property of society getting the most it can (maximum benefits) from its scarce resources

Equity

the property of distributing economic prosperity uniformly among the members of society

Opportunity Cost

whatever must be given up to obtain some item

Explicit opportunity costs

Direct monetary costs lost when making a decision, Costs that require a money payment, total costs, fixed costs, and variable costs.

Implicit opportunity costs

Costs that do not require a money payment, Do not consider the loss of direct monetary value when making a decision, tangible or intagible

Marginal Change

a small incremental adjustment to a plan of action

Marginal Benefit

is the added satisfaction or utility a consumer enjoys from an additional unit of a good or service.

Marginal Cost

is the change in total production cost that comes from making or producing one additional unit.

Monetary opportunity cost

is the money or benefits lost when choosing one option over another. It's a key concept in economics that helps people understand the trade-offs involved in decision-making.

nonmonetary opportunity cost

is a sacrifice of time or effort that results from choosing one option over another.

Trade-off

is when you choose one thing which causes you to have to give up, or sacrifice, another

Rational people

people who systematically and purposefully do the best they can to achieve their objectives

Margin

edge

Cost-benefit analysis

is a data-driven approach to evaluating a project or decision's financial benefits and costs from a business perspective

Incentive

is something (such as the prospect of a punishment or reward) that induces a person to act.

policy signals

promote policy objectives by guiding market expectations, and scholars have come to focus on the market

policy signals

refer to actions or statements made by policymakers that convey information to market participants about their future policy intentions, influencing market expectations and behavior without necessarily requiring immediate policy changes

Public policy

is the framework of laws, regulations, and actions governments implement to achieve social and economic goals. It's a statement of the government's intent and commitment to address a particular issue or problem.

Intrinsic incentives

It comes from within. That is, a person with intrinsic motivation wants to do something for its own sake, without outside pressure or reward. It's that feeling of personal fulfillment and satisfaction that people get from doing certain things, like learning a new skill just for the fun of it.

Extrinsic incentives

involve providing a material reward (like money) for accomplishing a task, or threatening some punishment for failure.

Tax incentives

are reductions in tax that the government makes in order to encourage spending on certain items or activities.

Financial Incentives

is a broader term that encompasses any monetary benefit given to a consumer, employer, corporation, or organization in order to incentivize them to do something they might not otherwise do.

Subsidies

are government incentive programs that provide set amounts of money to businesses in order to help them grow.

Tax rebates

are incentives to take certain actions, like investing in solar energy, for example

Private goods

are excludable and rival, meaning consumers need to pay for them and there's a limited supply

Private goods

Examples of ___ are Food and drink, Toys, Event tickets, Clothing, Cars, and Televisions (goods)

Common goods

are non-excludable and rival, meaning they are free but limited in supply. Governments often manage these natural resources for consumers

Common goods

Examples of ___ are fish stocks, timber, mineral deposits, and metal deposits (goods)

Club goods

are excludable and nonrival, meaning consumers pay for them and they are unlimited in supply. These goods could have a flat subscription fee, or companies could have tiered services or memberships.

Club goods

Examples of ___ include: Country club memberships, Gym memberships, Insurance coverage, Newspaper subscriptions, and Streaming service subscriptions (goods)

Public goods

are non-excludable and nonrival, meaning they are free for everyone and unlimited in supply. The public sector typically manages these goods.

public goods

Examples of ___ include: Street lighting, National defense, Public beaches, Mountains, and National parks and monuments (goods)

Capital goods

are private goods that are not sold directly to the consumer. Instead, businesses purchase capital goods to provide consumer goods and services.

capital goods

Examples of ___ include: Manufacturing machinery, Office buildings, and Transportation vehicles (goods)

Intermediate goods

are unfinished items that need to undergo further processing before businesses can sell them to consumers.

intermediate goods

Examples of ___ include: Food ingredients, Construction materials, and Electronic components (goods)

Fast-moving consumer goods

These private goods are cheap, produced in bulk and consumed quickly. They include everyday essential items, which people often buy regardless of whether their income falls or rises. Since people produce and sell these goods quickly, the market can also change quickly.

fast-moving consumer goods

Examples of ___ include: Food and drink products, Cleaning products, Toothpaste, and Toilet paper (goods)

Durable goods

are items that are expensive and long-lasting. Many people rarely purchase these goods and make careful decisions when purchasing them.

durable goods

Examples of __ include: Cars, Furniture, and Kitchen appliances (goods)

Luxury goods

are private goods that are more expensive than normal goods. When a consumer's income rises, they tend to spend a higher percentage of their income on these goods.

inferior goods

are private goods that are cheaper than normal goods. When a consumer's income falls, they often buy more pf these goods

inferior goods

Examples of ___ include: Canned vegetables, Instant coffee, and Generic brands

Merit goods

are items that many people consider healthy

Demerit goods

are those that most consider unhealthy. These goods can be private or public goods.

merit goods

Examples of ___ include: Education, Healthcare, and Healthy food, like fresh fruits and vegetables (goods)

demerit goods

Examples of ___ include: Cigarettes, Alcohol and Unhealthy food, like soda (goods)

pure public good

is a good that is non-rivalrous and non-excludable. This means that anyone can use the good without reducing its availability to others

Normal goods

are products that people buy more of as their income increases. This means that demand for normal goods increases when the economy expands.

Luxury goods

Examples of ___include: High-performance cars, Designer clothing, and Organic food (goods)

Negative incentives

or disincentives, punish people financially for taking certain actions. This is a way of encouraging specific actions without making them compulsory.

Trade

is a fundamental economic concept that describes a voluntary exchange between several parties

Comparative advantage

is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners.

Absolute advantage

is the ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time

Markets

is a coordinating mechanism that uses prices to convey information among economic entities (such as firms, households and individuals) to regulate production and distribution.

Market Economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Invisible hand

is a metaphor for how, in a free market economy, self-interested individuals can promote the general benefit of a society at large.

Market failures

a situation in which a market left on its own fails to allocate resources efficiently

Externalities

the impact of one person’s actions on the well-being of a bystander

Market power

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

Laissez-faire

is an economic theory from the 18th century that opposes any government intervention in business affairs and translates to “leave alone.”

John Maynard Keynes

(1883-1946) is known as the father of modern macroeconomics.

Property rights

the ability of an individual to own and exercise control over scarce resources

Productivity

the quantity of goods and services produced from each unit of labor input

Inflation

an increase in the overall level of prices in the economy

Business Cycle

fluctuations in economic activity, such as employment and production

Scientist, Policy advisor

Thinking like an economist two roles

economic model

is a highly simplified representation of a more complicated reality

Model 1: Circular Flow Diagram

A visual model of the economy; it shows how dollars flow through markets among households and firms.

Factors of Production

These are resources that the economy uses to produce goods and services (land, labor, and capital)

Model 2: Production Function

This is a graph that shows the various combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology that firms use to turn these factors into output

There are two goods that represents the market.

The supply of resources is fixed or constant.

Technology and techniques remains constant.

All resources are efficiently and fully used.

four assumptions of Production Function Model

Increasing, Decreasing, straight line

Types of opportunity cost

Increasing opportunity cost

bow-shape. You give up more computers if you produce more cars.

Decreasing opportunity cost

inverted bow. Every car you produce, You get better in producing it.

Straight line opportunity cost

constant. Regardless of how many additional cars you produce, the opportunity cost is constant.

Shift of technology, More education or training, Natural disasters

The PPF can also shift based on:

Macroeconomics

the study of economywide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets

Normative Statement

claims that attempt to prescribe how the world should be

Positive Statement

claims that attempt to describe the world as it is

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology