The word economy comes from the Greek word oikonomos

Oikos - of certain affinity, a dwelling

Nomos - from a primary

Liberal - treating everyone equal human beings

Subdue - tread down, bring into bondage (kabash, radah)

Abad - work

Shamar - keep

Celeris peribus - everything equal

Status analysis -everything remains equal and we study status at different points in time

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

Institution - durable forms of common life, framework/structures of what we do together

Eudominia - human flourishing - market is important

Autarky - no trade, independence

Fungible - you can divide it as many times as you want

Concrete - place, Don’s Market

Abstract - emergent institution

Perfect competition - particular market where there are many buyers and sellers

Adam Smith - father of economics

Lionel Robbins economics definition - human behavior as a relationship between ins and scarce means which have alternative uses

Dr. Wheeler economics definition - the study of human behavior as to how we may best ameliorate the material aspects of the fall

Knowledge problem Hayek - households and economics are different

We have a relationship with some people

We relate to people we don’t know through market transactions

No one is in control of the market but people are in control in a household

Market - institution that emerges when people are treated with respect and dignity and are provided with freedoms

Microeconomics - study of how households/firms make decisions and interact in specific markets

Positive statements - claim about how the world is

Normative statements - claim about how the world should be

Constrained - liberal

Unconstrained - conservative

Factors that determine price demanded - price, income, price of related goods, quality

Absolute advantage: producing good or service at the lowest money cost, using the fewest resources possible

Comparative advantage - producing good or service at the lowest opportunity cost

Trade is based if comparative advantage

Elasticity - responsiveness of the variable (dependent) to change in another variable (independent)

**Elastic Inelastic**

\-5 -0.5

flatter steeper

Higher on graph lower on graph

Point elasticity formula: multiply the slope of the demand curve by the ratio of price to quantity at the specific point on the demand curve

Price Elasticity of Demand = slope(x) \* price/quantity demanded

Income elasticity: change in quantity demanded/change in income

>0 is normal, <0 is inferior

Cross price elasticity: change in demand/change in price

>0 is substitute, <0 is compliment

Price elasticity of supply: change in quantity supplied/change in price

Binding price causes shortage

Nonbinding price causes surplus