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| every society in the world has LIMITED RESOURCES and cannot produce all the goods and services its people want and/or need. |
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| seeks to understand how societies allocate their limited resources |
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| founded the "classical school" of economics (embraced laissez-faire), wrote "The Wealth of Nations" 1776 |
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| "The General Theory," developed theories that have led to governmental intervention and attempts to control business cycles. |
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| focus on the importance of the money supply |
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| Three Fundamental Questions |
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| What to produce? How to produce? For whom to produce? |
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factors of production; used by firms in their production processes to make outputs.
LAND, LABOR, CAPITAL, ENTREPENEURSHIP |
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| good and services that are either consumed or used for further production eg: hamburger (final), hamburger bun (intermediate) |
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| societies face trade-offs such as pollution vs industrial production. Also between "equity," or the distribution of economic outcome, and "efficiency," getting the most we can out of our resources. |
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| the costs of a forgone alternative. We go to college to make more money in the future, but the cost of this includes books, tuition, transportation, and forgone earnings. |
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| the principle that actions should be taken only if added benefit is greater than added cost.(selling tickets to stand-by passengers on a plane at a price less than the average cost per seat.) |
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| people respond to incentives - people make decisions by weighing costs and benefits, but these choices are likely to change in response to changes in costs and benefits. (how over-taxation/over-regulation reduce incentives to work, save, and invest) |
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| Voluntary exchange makes everybody better off. A win-win situation. |
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| a good way to organize economic activity. An economy which allocates resources through the decentralized decisions of market participants |
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a situation in which a market left on its own fails to allocate society's scarce resources efficiently.
-externalities (external costs [pollution] & external benefits [keeping a nice yard increases the values of surrounding homes]).
- market power - oligopolies, monopolies |
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| the amount of output per unit of input utilized in production |
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| when the gov't prints money and prices rise |
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| a curve that shows the inverse relationship between the unemployment rate and the inflation rate. Very low unemployment rates generally trigger inflation to creep up and vice versa. Usu. downward sloping |
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