Introduction to Microeconomics and Macroeconomics

Scarcity: The fundamental economic problem where limited resources conflict with unlimited wants.
Objective: Allocate limited resources efficiently to achieve optimal outcomes for individuals, firms, or nations.

Total Benefit: Total sales or revenue generated ( $\text{Total Benefit} = \text{Total Sales}$ ).
Total Cost: Total expenses incurred to produce goods or services.
Economic Surplus (Profit): The net gain from an economic decision, calculated as: $\text{Economic Surplus} = \text{Total Benefit} - \text{Total Cost}$
Marginal Concept: Refers to the incremental change associated with "the next unit."
Marginal Benefit ( $MB$ ): The additional revenue or benefit gained from producing or consuming one additional unit.
Marginal Cost ( $MC$ ): The additional cost incurred from producing or consuming one additional unit.
Cost-Benefit Principle: A rational decision-maker should undertake an activity if and only if the benefit of doing so is greater than the cost.
Incentive Principle: An individual or firm should continue expanding an activity as long as $MB > MC$ . Total economic surplus is maximized where: $MB = MC$

Buyer's Reservation Price: The maximum price a buyer is willing to pay for a good or service.
Seller's Reservation Price: The minimum price a seller is willing to accept for a good or service.
Law of Demand: Holding all other factors constant, quantity demanded increases as price decreases (yielding a downward-sloping demand curve).
Law of Supply: Holding all other factors constant, quantity supplied increases as price increases (yielding an upward-sloping supply curve).
Market Equilibrium: The point where the supply and demand curves intersect, establishing a price that is:
- Stable: No inherent tendency to change unless external factors shift.
- Unique: Exactly one equilibrium price exists for a standardized product.
- Self-Enforcing: Surpluses force prices down, while shortages bid prices up.
Demand Curve Shifts: Caused by changes in non-price factors:
- Price of complementary goods.
- Price of substitute goods.
- Consumer income (affecting normal versus inferior goods).
- Consumer preferences and advertising.
- Total market size (number of buyers).
- Expectations of future price movements.
Supply Curve Shifts: Caused by changes in non-price factors:
- Production and input costs.
- Technological advancements.
- Natural events or environmental conditions.
- Total market size (number of sellers).
- Seller expectations of future price changes.

Gross Domestic Product (GDP): The total market value of all final goods and services produced within a nation over a specific time period: $GDP = C + I + G + NX$ Where $C$ is household consumption, $I$ is business investment, $G$ is government purchases, and $NX$ is net exports.
Inflation: The overall, general increase in price levels across an economy over time.
Consumer Price Index (CPI): A statistical metric calculated using a market basket of goods and services to measure overall price level changes.
Nominal GDP: Total output evaluated at current-market prices without adjusting for inflation.
Real GDP: Total output adjusted for inflation relative to a base year, reflecting actual changes in physical production.
Real GDP per Capita: Real output divided by total population, measuring average standard of living: $\text{Real GDP per Capita} = \frac{\text{Real GDP}}{\text{Total Population}}$
Capital Goods vs. Consumption Goods: Long-term growth depends on investing in capital goods (infrastructure, technology). Wealthier nations allocate more resources to capital goods, whereas poorer nations allocate most output to immediate consumption goods.
Barriers to Economic Growth: Factors hindering economic development include capital flight, brain drain, the vicious cycle of poverty, history of exploitation, and government failure or crony capitalism.

Business Cycle: Fluctuations in economic output characterized by periods of expansion (growth) and recession (contraction).
Labor Force: Able-bodied individuals who are either currently employed (full-time, part-time, or temporary) or unemployed but actively seeking employment.
Unemployment Rate: The percentage of the labor force that is unemployed: $\text{Unemployment Rate} = \frac{\text{Unemployed Workers}}{\text{Labor Force}} \times 100$
Labor Force Participation Rate: The proportion of the total working-age population present in the labor force: $\text{Labor Force Participation Rate} = \frac{\text{Labor Force}}{\text{Total Population}} \times 100$
Types of Unemployment:
- Frictional: Voluntary job transitions during search for better employment.
- Structural: Mismatch between worker skills and market needs due to technological advancement or structural demand shifts.
- Cyclical: Job losses directly caused by downturns in the business cycle.
Stagflation: An undesirable economic state defined by simultaneously high inflation, high unemployment, and stagnant economic growth.