Chapter 1: Exploring Economics
Economics - the study of how individuals, businesses, and society make decisions to allocate limited resources to unlimited wants
Economics assumes people are:
Rational
If there are 2 apples and one is $1 and the other is $2 they would be the $1
Self-interested
They buy apples because they like apples
Respond to Incentives
Apples on sales
Macroeconomics - the study of decision-making by individuals, businesses, and industries
Ceteris paribus - an assumption stating that all things are held constant/held equal
The two apples are the exact same (type of apple, organic, size)
Efficiency - how well resources are used and allocated
Production efficiency - goods produced at the lowest possible resource cost
Allocative efficiency - goods and services are what society wants (supply and demands)
Sell surfboards in Orange Country and San Diego
Equity - resources among people are considered fair
Not as important
Equity is seen as subjective
Cigarette tax taxes on lower-income but higher-income use cigars/pipes but not taxed → both contribute to high health care but only one is taxed
Positive Question - can be easily answered with information or facts available
Objected and based on evidence
Normative Question - uses society’s beliefs about what should or should not take place
Subjective and has varying opinions
Economics is concerned with making choices with limited resources
Unlimited wants clash with limited resources
Goal: allocation of scarce resources
Time and money
Making decisions has to include tradeoffs and opportunity costs
Opportunity Cost - next best alternative; what you give up to do
Specialization leads to gains for all involved
People work to what is best suited for them
People respond to both good and bad incentives
Rational behavior required thinking on the margin
What if you add/take one what is the benefit?
All-you-can buffet: cost/benefits of one more plate (cost, bloating, weight)
Markets are generally efficient; when they aren’t, the government can help
A company only sells this product which makes it popular. Too much demand increases the price. The government suggests merging with other companies if it’s not too much. (if big merge, it will create a monopoly)
Subsidies - give money to industry to stay in business
Private markets and competition force businesses to be efficient/close. no government involvement
Economic growth, low unemployment, and low inflation are economic goals that do not always coincide.
Institutions and human creativity help explain the wealth of nations
Creating the computer → more efficient system
Economics - the study of how individuals, businesses, and society make decisions to allocate limited resources to unlimited wants
Economics assumes people are:
Rational
If there are 2 apples and one is $1 and the other is $2 they would be the $1
Self-interested
They buy apples because they like apples
Respond to Incentives
Apples on sales
Macroeconomics - the study of decision-making by individuals, businesses, and industries
Ceteris paribus - an assumption stating that all things are held constant/held equal
The two apples are the exact same (type of apple, organic, size)
Efficiency - how well resources are used and allocated
Production efficiency - goods produced at the lowest possible resource cost
Allocative efficiency - goods and services are what society wants (supply and demands)
Sell surfboards in Orange Country and San Diego
Equity - resources among people are considered fair
Not as important
Equity is seen as subjective
Cigarette tax taxes on lower-income but higher-income use cigars/pipes but not taxed → both contribute to high health care but only one is taxed
Positive Question - can be easily answered with information or facts available
Objected and based on evidence
Normative Question - uses society’s beliefs about what should or should not take place
Subjective and has varying opinions
Economics is concerned with making choices with limited resources
Unlimited wants clash with limited resources
Goal: allocation of scarce resources
Time and money
Making decisions has to include tradeoffs and opportunity costs
Opportunity Cost - next best alternative; what you give up to do
Specialization leads to gains for all involved
People work to what is best suited for them
People respond to both good and bad incentives
Rational behavior required thinking on the margin
What if you add/take one what is the benefit?
All-you-can buffet: cost/benefits of one more plate (cost, bloating, weight)
Markets are generally efficient; when they aren’t, the government can help
A company only sells this product which makes it popular. Too much demand increases the price. The government suggests merging with other companies if it’s not too much. (if big merge, it will create a monopoly)
Subsidies - give money to industry to stay in business
Private markets and competition force businesses to be efficient/close. no government involvement
Economic growth, low unemployment, and low inflation are economic goals that do not always coincide.
Institutions and human creativity help explain the wealth of nations
Creating the computer → more efficient system
