Unit 1 Micro Lesson Notes
Unit 1 Notes
Lesson 1 - The Economic Way of Thinking
Everything has a cost
W “free” public school
Your spending the money for taxes to the school
Your spending your time in the school rather than getting jobs
People choose for good reasons
Incentives matter
Go to work for the people working on farms rather than go to school
People create economic systems to influence choices and incentives
Tradition
There is no change it is set behavior
Market
Free choice
Command
Decision made by government
People gain from voluntary trade
Economic thinking is marginal thinking
Think about the benefits and the gains from the decision
The value of good or service is affected by people’s choices
Supply and demand
Economic actions create secondary effects
The test of a theory is its ability to predict correctly
Lesson 2 - Intro to Economic Terms
The Foundation of Economics
Society has virtually unlimited wants
But limited or scarce productions/resources
Economics - the efficient use or management of limited productive resources to achieve maximum satisfaction (utility) of human material wants
How does society manage its scarce resources
Why do we have wants?
New wants replace old wants
Want something newer
Changing tastes and preferences
Change in what you want cause of other factors
Technological change
Need more outlets or electricity
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Limited resources
Limited and relatively scarce resources
Scarcity - society has less to offer than people wish to have
Resources - anything people can use to obtain what they want (factors of production)
Types
Land
Any natural resource provided by nature
Labor
Mental and physical capacity of workers to produce goods and services
Capital
Physical plants, machinery, and equipment used to produce other goods or services
Entrepreneurship
Concept of risk taking or having guts
Creative ability of individuals to start new businesses, introduce new products, and techniques, and improve management techniques
Consumer vs. Capital Goods
Consumer Goods
Provide immediate satisfaction to consumers like food
Capital Goods
Do not provide immediate satisfaction
Macro vs Microeconomics
Macroeconomics - deals with economy as a whole or with basic subdivisions or aggregates - inflation and unemployment
Microeconomics - deals with economic units and detailed consideration of these units - specific industry study
Positive vs. Normative Economics
Positive economics
Facts tan avoids values judgment - inflation or unemployment number
Normative Economics
Involves someone;s judgements about what should be done
Certeris Paribus
All other variables except those under immediate consideration are held constant
Marginal Analysis/Changes
Small incremental adjustments to a plan of action
Marginal benefits to marginal costs
Opportunity cost
Whatever must be given up to obtain smt else
Direct and Inverse Relationships
Direct Relationships - up-sloping line that depicts a direct relationship between two variables
Inverse Relationship - down-sloping line that depicts a change in opposite directions of the variables in question
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Lesson 3 - Production Possibilities Curve or Frontier
PPC = PPF
Full Employment
all available resources should be employed
Full Production
Unemployment - when we fail to realize our full production
Allocative Efficiency
Resources are being devoted to that combination of goods and services most wanted by society
Ex. society wants material to allocate the mp3 over a dvd
The future will change from what is normal per say
Productive Efficiency
Desired goods and services are produced in the least costly ways
Ex. Lexus instead of Tesla
Production Possibilities Model
Illustrates production choices
Assumptions
Full Employment
Fixed Resources in the short run - today it is what it is and tomorrow it can be changed
Fixed Technology
Two Goods
The law of increasing opportunity costs make the PPC concave
Production Possibilities
Law of increasing opportunity costs
The amount of other products that must be forgone or sacrificed to obtain some amount of a specific product called opportunity cost of that good
Means that the graph of the PPC curve will be CONCAVE - bowed out from the origin
Economic Growth
1. Increases in resources
2. Better resource quality
3. Technological process
Lesson 5 - Basic Economic Systems
3 types of Economic Systems
Traditional
Custom determines what, how, and for whom
Passed from generations
Change is rare and slow
Market
Private ownership of resources of production
Production decisions made by private individuals
Laissez-faire
Advantages
Economic Freedom
Economic Efficiency
Competition
Disadvantages
Economic inequality
Economic Security
Little government support for poor
Command
Planned economy - socialism
Government
Owns / controls resources of production
Makes all economic decisions
Advantages
Economic equity
Equality of income
Economic security
Guaranteed lifetime jobs and pensions
Disadvantages
No economic freedom
No incentive for productivity or innovation
Does not respect personal freedom
Realistically, government officials were of privileged class
Lesson 6 - Circular Flow Diagram
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A simplified dynamic economy of continuous flows of goods and services, resources, and money.
This simple economy consists of households and businesses and there is no government.
Households are the owners of the resources (selling their resources in the resource market) and income flows into the households.
Households are the ones who buy the goods and services in the products market.
The prices that are paid in the products market are determined by supply and demand.
Businesses buy the resources providing income to the households.
Businesses buy the resources to produce goods and services that are then sold in the products market to households.
When firms sell their products, the money that they receive is called revenue.
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