Chapter 1: Big Ideas

ECON

What is Microeconomics?

Studies how incentives affect human choice under conditins of human scarcity & how those choices affect market outcomes such as the price of & services.

What is Macroeconomics?

Studies the performance & structure of the overall economy. By examining statistics such as GDP

What is GDP

Gross Domestic Product

How do you deal with scarcity?

Maximize profit

What is scarcity?

Refers to unlimited wants and limited resources & limited resources to satisfy those wants

What is accounting profit?

Total revenue - total costs, price x quantity, monetry costs

What is economic profit?

Total benefit - total costs, monetary costs & opportunity costs

Profit-Maximizing Rule

Only take actions where the marginal benefit (MB) > marginal cost (MC)

What is opportunity cost?

The value of what you give up

Sunk Costs?

A cost already incurred that can’t be recovered

What is “∆TB”

Change in total benefit

What does change in total benefit mean?

The difference in total benefit after increasing or decreasing the activity

What is “ΔQ”

Change in quantity

What does change in quantity mean?

The incremental change in the number of units consumed or produced

What is “∆TC”

Change in total cost

What does change in total cost mean?

Represents the change in total cost when the qunity of output produced changes

What does MB mean?

Marginal benefit

What does MC mean?

Maginal costs

What does Incentives matter?

Rewards or penalties that motive behavior

What are types of incentives?

Monetary, moral, social & legal

What is the Invisible Hand

A metaphor that describes how that purist of self-intest leads to socially desirable outcomes under certain conditions

What are prices?

Act as signal (scarcity of good) & incentive to economize on scare resources.

What is Spontaneous Order

An order which emerges as the result of the voluntary activities of individuals