Economics

Economics

The study of how societies use scarce resources to produce and distribute valuable commodities.

Scarcity

When you want more of a resource than is available.

Theoretical Economics

Economics for economic sake.

Keynes

Spending is a key factor for a good economy (Theory of Aggregate Demand).

Ricardo

All countries benefit from free trade (Theory of Comparative Advantage).

Applied Economics

Applying economic theories in practice.

ARRA in 2009

Government spending to stop the recession.

CARES

Government spending to stimulate the economy during COVID.

Positive Economics

Analyzing factual patterns in economics.

Minimum Wage and Unemployment

Increasing minimum wage can lead to higher unemployment.

Trade-offs

Equity and efficiency are trade-offs in economic policy.

Monopolies

Monopolies increase prices, decrease production, and enhance research and development.

Normative Economics

What should be happening in the economy?

Minimum Wage Debate

Questions about how high the minimum wage should be.

Equity Considerations

Questions about the level of equity in the economy.

Monopolies Discussion

Should monopolies be broken up?

Microeconomics

Study of individual decision-making units in the economy.

Consumer Decisions

Consumers decide what to buy.

Firm Decisions

Firms decide prices, labor amounts, and wages.

Market Decisions

Markets determine taxes.

Founder of Microeconomics

Adam Smith.

Macroeconomics

Study of an entire country's economy.

Economic Aggregates

Combines national output and other economic indicators.

Key Macroeconomic Indicators

Unemployment, inflation, and stability.

Founder of Macroeconomics

Keynes.

Productive

Making the most amount of stuff with the resources as you can.

Allocative

Making the right things that give the most satisfaction with the resources.

5 core economic ideas

1. Humans are rational

2. All choices have a cost

3. All choices have a benefit

4. Marginalism

5. Rational choices respond to incentives

Goals

• Maintain good economic growth

• Efficiency

• High employment

• Price stability

• Equity

• Security

• Balance of trade (balance of exports and imports)

Explicit Cost

Monetary payments the firm must make to outsiders who supply factors of production that the firm does not own.

Implicit Cost

Money payments self-owned, self-employed resources could have earned in their best alternative use.

Accounting Profit

Total revenue minus explicit costs.

Economic Profit

Total revenue minus economic costs (explicit plus implicit costs).

Fixed Cost

Total dollar expense paid out even when no output is produced; not affected by the level of output.

Variable Cost

Expenses that vary with the level of output, such as costs of raw materials and labor.

Marginal Cost

The extra or additional cost of producing one more unit of output.

Average Cost

Total cost divided by the number of units produced, representing per-unit cost.

Minimum Efficient Scale (MES)

The lowest level of output for a given industry for which a firm can minimize its long run average cost.

Least-Cost Rule

To produce a given level of output at least cost, a firm should buy inputs until the marginal product of the last dollar spent on each input is the same