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| The study of human behavior in the presence of constraints. Study economics to predict what you will do |
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| government, taxes, money, first day attendance tool, choices you make, time, parents, society |
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| it is anything that is not so abundant in nature, anything with a price |
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| is available in nature in such abundance that if the price were 0, we could get all that we want. Example: ocean water, sunshine, air |
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| anything used to produce another good |
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| iron ore, oceans, river, land |
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| knowledge, experience, talent |
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| tools, machinery, factories |
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| no. we will never run out because before we ever use it all, it is so costly to find, we begin to look for alternatives |
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1. land
2. labor
3. capital
4. entreprenuership |
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1. rent
2. wages
3. interest
4. profit |
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| specialized form of human capital. person that brings together the other 3 (land, labor, and capital) to produce a new idea or service |
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| return of entreprenuership |
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| total revenue - total cost. If greater than 0, means profit, if less or negative, than loss |
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| taking resources worth a certain amount of money and combining them into a finished product worth more than what they cost individually |
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| where scarce resources are combined and they are worth less than individually |
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| increased value of scarce resources |
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somebody that pays part of the cost.
when subsidized we get more of something |
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| is a specific thing. not abundant enough in nature so that everyone can have as much as they want for free |
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| is subjective and someones opinion |
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| true or false, can be tested. economic statements that can be proven or disproven |
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| someones opinion, not provable or disprovable |
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| opinion. Example: an opinion on an essay |
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| multiple choice, T or F, matching, you obviously get the right answer or you don't |
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| additional cost and additional benefit |
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allocating a scarce resource among those who want it.
Example: with price, first come first serve, arbitrarily |
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| is most efficient, but poor people cannot afford it |
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| most highly valued thing you give up when you do one thing versus another, very subjective |
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| there is always a tradeoff |
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| we call this opportunity cost |
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| individuals choose purposefully and therefore economically |
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| people either choose the highest utility or the lowest cost |
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| Economic thinking is marginal thinking |
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| people make decisions at the margin |
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| information is a costly good |
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| example: education, college is very expensive |
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| you remain rationally ignorant when the cost of something is more than the benefit |
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| immediate cost and immediate benefits and can't see the long term cost and the long term benefits |
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| economists always remember |
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| association is not causation |
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| every time it rains, I see umbrellas, therefore umbrellas cause rain. In fact, rain causes the use of umbrellas |
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| just because something is good for the individual doesn't mean it is good for the group |
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save a few lives or a lot of lives with a certain amount of money
Example: making people buy a ticket for an infant on a plane, causes them to drive which is more dangerous than flying on an airplane |
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| individual decision making |
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| you decide what you want, often you determine your own opportunity cost |
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| collective decision making |
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| he [the government] tells you what your OC is. He pulls your money and he collectively thinks and tells you what your OC is |
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| anything we do to limit trade reduces value and wealth in our country |
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| both willingly enter into the trade |
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| if somebody gets value from the trade, another loses value |
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| trade is a positive sum game because people willingly enter the trade, and both parties benefit |
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| reduce costs of trade and increases value |
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| non governmental intervention |
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1. right to exclusive use of property
2. legal protection against others using it without owners permission
3. right to transfer, sell, exchange or mortgage the property |
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| government condemns your property by saying that we think your property would be better suited and would create more wealth by using it for something else, so they take it |
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| bad for individual, but good for the society as a whole |
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| good things that result from property rights |
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1. property owners have the incentive to consider the desires of others and lose by not considering the rights of others
2. incentives to take care of your property to protect the value |
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| everyone shares it and it technically is no ones property. Problems include littering, school desk graffiti, etc. |
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| production possibilities curve |
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graph that shows all the different combinations of goods and resources that can be produced in an economy based on three things:
1. fixed amount of resources
2. fixed amount of technology
3. using both resources and technology efficiently
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| any good used to produce another good. Natural or man-made - a resource |
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| the government makes the decision of what point to produce at |
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| any point along the line on the production possibilities curve |
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| equally well suited to produce good A as good B. the opportunity cost of a linear curve is constant |
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| opportunity cost is not constant |
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| can we consume beyond our production possibilities frontier? |
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| opportunity cost is more, you give up less than others to do this thing |
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| you do something better, example: faster, better, etc. |
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| is a schedule of all the various quantities of a good or service that consumers are willing and able to buy at various prices but at a specified time, place and population |
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| an indirect relationship or inverse relationship between price and quantity demanded. Tells us what direction consumers will go |
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| consumers buy more or less of a good or service for any reason other than price (shift of the curve) |
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| change in quantity demanded |
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| when a consumer buys more or less of something because the price changes (slide along the curve) |
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| measures your additional benefit |
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| the difference between your demand curve and what you actually have to pay which is the market price |
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| what you are willing and able to buy |
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| is above the price line and below the demand curve on a graph |
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| measures the magnitude of how much more; degree of how much more or how much less |
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if a good has many close substitutes then your demand will be relatively elastic. As the price changes consumers respond a lot.
If it doesn't have good, close substitutes then the demand curve is inelastic |
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| difference between what consumer is willing and able to pay and what he actually has to pay |
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| a schedule of all the various quantities of a good or service that a producer is willing and able to see at various prices and at a specified time, place, and population |
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| positive or direct relationship of price, quantity and supply |
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| caused by anything but price (a shift of the supply curve) |
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| change in quantity supplied |
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| caused by a change in price (slide along on the supply curve) |
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| the difference between what it costs us to produce a unit and what we actually get from producing it |
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| the cost of producing each additional unit |
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| as you produce more of something |
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| the cost of producing that thing goes up |
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| in a competitive market economy |
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| the price will always tend toward equilibrium in absence of governmental intervention |
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| cannot tell you which (supply or demand) determines, because both do |
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| where supply and demand intersect |
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| how responsive quantity demanded is to a change of price |
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| as your income rises you buy less of this good |
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| as your income rises, you buy more of this good |
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| Things that cause your demand curve to shift |
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1. income
2. number of buyers in the market
3. innovation
4. price of a related product
5. expectations |
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| supply, demand, and government |
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| determines price, the government can decide to set a price arbitrarily |
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| market prices coordinate the actions of self-interested individuals and direct them toward activities that promote the general welfare |
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| a state in which all potential gains from trade have been realized. an action that is only efficient if it creates more benefits than costs. In a competitive market with well defined property rights, market equilibrium results in economic efficiency |
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| a state in which the forces of supply and demand are in balance. quantity supplied in the market will equal quantity demanded in the market |
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| goods that perform similar functions |
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| goods that are normally consumed together |
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| production possibilities curve |
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| graph that shows all possible allocations of the most output that can be produced from limited resources of an economy. it assumes resource base is fixed, technology is fixed, and resources are being used efficiently |
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| an economic system in which productive resources are owned privately and goods and resources are allocated through market pricing |
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| an economic system in which the basic means of production are owned and controlled by the government and goods and resources are allocated through government central planning |
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| new products and methods of production replacing old ones. |
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| anything that makes a transaction more expensive. |
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| someone who or something that facilitates trade |
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| the difference between the minimum price suppliers are willing and able to sell something for and the price that they actually sell it for. |
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| is what it costs to produce at that quantity |
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| is caused by a price floor |
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| is caused by a price ceiling |
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resources:
1. land
2. labor
3. capital
4.entreprenuership |
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return:
1. rent
2. wages
3. interest
4. profit |
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Definition
1. always a tradeoff
2. individuals choose purposefully and therefore economically
3. incentives matter
4. economic thinking is marginal thinking
5. information is a costly good
6. remember secondary effects |
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1. opportunity cost
2. trade creates value
3. property rights
4. production possibilities frontier
5. comparative advantage |
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a. assumes free market
b. includes three elements
c. can use property rights as long as you don't infringe on anyone else's property rights
d. good things result from property rights |
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| good things that result from property rights |
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Definition
1. property owners have the incentive to consider the desires of others
2. incentives to take care of your property to protect the value
3. incentives to conserve
4. incentives to be careful with property |
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