Economics Chapter 1: Intro to Economics

Terms	Definition	Examples
Price Discrimination		Making the cost of repairing AC higher in summer and lower in winter.
Scarcity	When a good/service is in permanently limited supply.
Shortage	When the producer is not producing enough to meet the demand of the consumer at a given price.	nintendo produced small amount of a certain product, sold out fast, and eventually made more of the product to sell.
Land	Not actual land but the natural resources on or under the earth’s surface, that are used to produce goods and services.	Animals, trees, oil, rocks, water, sand
Labor (braindead)	The physical task needed to create the goods/services.	People are paid for their labor. A shelf stocker.
Capital	Any resource used in production, that was created by humans.	Machines, buildings
Human Capital (brain)	Knowledge and skills that a worker has.	Building the machines, transporting the product
Physical Capital	Objects previously created, used to produce and create other goods and services.	Corn syrup, ground mustard, food starch (with the hot dogs)
Entrepreneurship	People that come up with a business idea, and obtain the resources to make a product.	Jeff Bezos and Amazon
Law of Diminishing (decreasing) Marginal (additional) Returns (value) or the Law of increasing Marginal opportunity cost.	Over time, it will take more and more resources to make more products.	A volcano errupts and a hospital that only has surgeons and dentists get all of the patients. You start surgeons on surgeries but you start running out of surgeons so you have to start Dentists on surgery. The quality and quantity of your resources is depleting.
Underutilization	Not using your resources to achieve maximum efficiency	Falling below the PPC line.
Trade-Offs (individuals and businesses make trade-off decisions every day.)	the act of giving up one benefit in order to gain another greater benefit. (it leads to opportunity cost)	getting up and going to school. Giving up sleep to go to school, get an education, which will eventually lead to you getting a job.
Opportunity Cost (varies from person to person)	The most desirable choice (good, service, experience, etc.) given up as the result of a decision. (the second choice, and what you are missing out on)	You get up and go to school, you’re missing out on extra sleep. T-shirt: $5 Sweatshirt: $10 By making the sweatshirt you miss out on the $5 you would make off the T-shirt. (businesses make decisions mostly based on money)
Cost-Benefit Analysis	determining what you will give up and what you will gain from it.	You want to make $100 per hour. You make t-shirts and it takes 2-3 hours to set up one design. You get an order for 15 t-shirts and just after you completed the order and set up another design, the customer asks if you can make just one more. THE COST OF MAKING ANOTHER T-SHIRT IS TOO HIGH AND THE BENEFIT IS TOO LOW.
Marginal Cost (called thinking at the margin)	The extra COST of gaining/making one more unit	It will cost you 2-3 hours which would essentially be $200-$300 based off of your profit goals.
Marginal Benefit (called thinking at the margin)	The extra BENEFIT of adding one more unit	Maybe $15 for the one t-shirt
Factors of Production	resources needed to produce/create goods and services	(land, labor, capital, entrepreneurship)
Efficiency	utilizing resources in way to max production	maximum efficiency = points on the PPC (productions possibility curve)

Business Decisions:

Companies constantly battle (Businesses and Entrepreneurs ask themselves these questions) with 3 key economic questions (Very hard questions to answer well): * What do I produce? * How do I produce it? * most difficult question for most companies * Who has access to it? * money and location

Goal of companies, businesses, and entrepreneurs = make money.

As Consumers (buyers/customers):

understand why goods are priced the way they are * Nike vs. Sportech
predict changes in prices/availability of goods/products * Black Friday * buying ski’s in summertime (cheaper) * ac repair in winter not summer (cheaper)
realize and attempt to understand the impact that our behavior has on producers/companies as well as other consumers

Why do WE Study Economics

There is no infinite supply of anything

All resources=scarce

What is Economics?

The study of why (what motivates) people to make the decisions they do, in regards to how they utilize their limited resources (make the most of the resources they have) * “Snooze the alarm, or get up?” * “New phone, or fix the original?” * “Which college?” * “Which car?”
study of why businesses make the decisions they do * why are Macbook’s more expensive than PC’s?

ECONOMICS is kind of just an enormous question of “why?”

What do Economists do with the info they collect?

predict how consumers will respond to: * changes in price * new products * changes in consumption habits when * change in income * competitor’s products change in price * personal changes * age, location, tastes, etc.
One curve: A curve showing all possible combinations that can be produced given the current stock of capital, labor, natural resources, and technology. A straight line represents constant opportunity costs, and a bowed out line represents increasing opportunity costs.
An inefficient machine operates at high cost, while an efficient machine operates at lower cost, because it is not wasting energy or materials. An inefficient organization operates with long delays and high costs, while an efficient organization meets schedules, is focused, and performs within budget.
Allocative efficiency means that the particular mix of goods being produced—that is, the specific choice along the production possibilities frontier—represents the allocation that society most desires.