Econ Mid term 1
Economics
The study of how society manages its scarce resources.
Microeconomics
focuses on the individual parts of the economy
Macroeconomics
looks at the whole economy as a whole
The 4 princples for people making decions
1. People Face trade-offs
2.The cost of something is what you give up to get it
3.Rational people think at the margin
4. People respond to incentives
Incentive: something that induces a person to act
Opportunity cost
Give up something to obtain other item
How people interact 3 Principles
5. Trade off can make everyone better off
6.Markets are usually a good way to organize economic activity
7. Government can sometimes improve market outcomes
EFFICIENCY
means when the society gets maxim benefits given the resources at hand
EQUITY
when benefits is distributed with fairness among people of society
What do economists do?
Explain economic events (how price and quantity are related to each other)
Understanding the relationship between minimum wage law leading to unemployment
Economists are asked to recommend policies to improve economic outcomes
What should cause the gov't do to increase the employment rate
The Production Possibilities Frontier (PPF)
A graph that shows various combinations of outputs that the
economy can possibly produce, can only go past the line if trade is involved
Positive Statements
descriptive : Describe the world how it is, describe the cause and effect, testable or falsifiable because you could go to other countries or test data
Normative statements
prescribe how the world should be, give opinion about how something should or shouldn't be, Not testable.
Why economists disagree
They often disagree in the direction the truth lies
Why government doesnt listen to the economists
Political considerations
public opinion
feasibility
Implementation of the policy
Interdependance
You provide people with goods and serivces and get something in return
Trade
Volantry exchange between 2 or more people that makes all participants better off
Absloute advantage
The ability to produce a good using fewer inputs than another producer
Comparative advantage
The ability to produce a good at a lower opprtunity cost than another producer
Specialization
An approach to production in which producers become
highly skilled to perform a specific task. Specialization
encourages trade
Self-sufficent
Related to the output and product and effiency
Demand
A buyers willingness and ability for purchase for a certain good or serivce
Quanity demanded
The amount of good a buyer is willing to purchase
Supply
A sellers willingness to sell a good or service
Quanity supplied
The amount of a good a seller is willing and able to sell
Law of demand
When the quanity demanded of a good falls when the price of a good rises
Law of supply
The supply quainty of the good rises when the price rises
Surplus
Situation in which quainty supplied is greater than the quanity demanded
Shortage
A situation in which quanity demanded is higher than quanity supplied
Monoploy
There is only one seller. Buyers and price takers
Normal good
A good in which an increase in income leads to an increase in demand
Inferior good
A good for which an increase in income leads to an decrease in demand
Substitutes
When 2 goods increase in the price one leads to an increase of demand in the other
Complements
When 2 goods have an increase in price that leads to a decrease in demand into the other one. E.X Petrol and cars
Equilibrium
Price has reached the level where quanity supplied equals quanity demanded
Elasticy
Is a measure of how much buyers and sellers respond to change
allows us to analyze supply and demand
with greater precision (both direction and
magnitude)