Economics
is the study of how society manages its scarce resources
Principle #1
People face trade offs - there is no such thing as a free lunch
Principle #2
The cost of something is what you give up to get it
Principle #4
Rational decision makers "take action only if marginal benefits of the action exceed marginal cost of action
Principle #5
Trade between two entities benefit everyone
The market is guided by
self interest "adam smith
Market Power
refers to the ability of a single person or firm to unduly influence the market prices
Productivity
the amount of goods and services produced by each unit of labor input
Inflation
an increase in the overall level of prices in the economy
Decrease in growth rate of money will be accompanied by
an increase in the unemployment rate.
Principle #10
society faces a short-run trade off between inflation and unemployment
Economists must use whatever data is given to them.
The scientific method: observation, theory and more observation. All economic theories are based on data
Economists make assumptions
assumptions can simplify the complex world and make it easier to understand
Suppose susan worked overtime at harris teeter and earned $100 more. Then she should be on both flows; the real flow factors of production and the money flow on the factors of production
effects real flow of factors of production and money flow of income.
Microeconomics
the study of how households and firms make decisions and how they interact in markets
For economists there are two types of statements about the world.
Positive- are descriptive make claim about the worlds is.
Normative- are preceptive and make claims on what the world ought to be
Without trade Production Possibility frontier
is also the consumption possibility frontier
Imports
goods produced abroad and sold domestically
Exports
goods produced domestically and sold abroad
Economists generally support
Free international Trade. Trade can make everyone better off
Market
a group of buyers and sellers of a particular good or service
Competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
Quantity Demanded
the amount of good that buyers are willing and able to produce
Law of Demand
claim that other things being equal the quantity of demanded good falls when the price of the good rises
Market supply
total quantity supplied varies as the price of the good varies, holding constant all the other factors beyond price that influence producers decisions about how much to sell
Law of supply
the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises