Microeconomics

Economics

The study of how we make choices about allocating scarce resources under constraints to maximize welfare.

Scarcity

The starting point of economics; resources are insufficient to satisfy every possible want.

Choice

Because not everything is feasible at once due to scarcity, agents must rank alternatives. Every choice has a cost.

Market-Based Economy

An economic system where all decisions are made by markets via privately owned producers and consumers, with prices acting as the only allocative mechanism.

Centrally Planned Economy

An economic system where all resource allocation decisions (what to produce, who provides, who consumes) are made by the state.

Mixed Model Economy

Most modern economies harness the welfare-producing powers of markets, but the government regulates industries, provides public goods, and redistributes resources.

GDP

Measures the market value of final goods and services produced in a country over a period. Standard because it's comparable, but misses inequality, unpaid work, environmental damage, and leisure.

Economic Freedom Index

An imperfect proxy (by Fraser Institute) for institutions and policies that shape economic choices. Should be used cautiously as it is a model, not a complete ranking of "good" societies.

Opportunity Cost

The cost of a choice; what you give up when making a decision (e.g., the cost of 10 hours of extra leisure is the $200 of lost wages at $20/hr).

Marginal Utility

The extra value gained from consuming one more unit of a good or activity (e.g., another hour of leisure is worth more when leisure is scarce).

Present Bias

A behavioral concept where immediate costs and rewards receive extra weight, leading to procrastination.

Commitment Device

A rule, deadline, or constraint that helps future behavior follow current intentions (e.g., a quit date for smoking or a homework deadline).

Positive Economics

Objective economics: What is happening? What caused it? What will happen if policy changes? (e.g., "What happens if rents are capped?")

Normative Economics

Subjective economics: What should we do? Which outcomes matter most? How should costs/benefits be shared? (e.g., "Should affordability justify rent controls?")

Wealth Creation vs Redistribution

Economics does not endorse greed; it studies how growing the "pie" can make people better off without making others worse off, while acknowledging trade-offs and fairness.

Keynes’ Productivity Prediction

Economist Keynes predicted working hours would fall to 15 hours per week by 2030 due to productivity increase. He was wrong because people now desire more goods and services over additional leisure.

Economic Models

Simplifications of reality that leave out detail on purpose. A good model isolates a useful mechanism, clarifies trade-offs, and makes predictions.

Constraint

A limit on feasible choices, income, time, technology, law or physical resources

Choice

Because not everything is feasible at once, alternatives must be ranked.