UNIT 1 intro

Microeconomics vs. Macroeconomics 

  

• Microeconomics - the study of how households and firms make decisions and how they interact in the market
• ex: supply and demand, market structure
• Macroeconomics - the study of major components of the economy
• ex: inflation. wage laws, international trade 

Positive economics - claims that attempts to describe the world as is

     ex: minimum wage laws causes unemployment

Normative economics - claims that attempt to prescribe how the world should be

     ex: the government should raise the minimum wage

Want - a desire

 Need - the basic requirements for survival

 Scarcity - the most fundamental economic problem facing all societies

     ~ how to satisfy unlimited wants with limited resources

Shortage - quantity demand > quantity supplied

Goods vs Services

• Goods - tangible commodities ( 2 types )
• capital - items used in the creation of other goods
• ex: machines, trucks
• consumer - goods that are intended for final use
• ex: burgers   

• Services - can't be touched or felt; work performed for someone

The 4 types of production

1. land - natural resources
2. labor - work exerted
3. capital
1. human - knowledge acquired skills
2. physical - machinery 
4.  entrepreneurship - risk taking

Production Possibility

 

Opportunity cost - the most desirable alternative

Guns or Butter tradeoff - things aren't produced at equal levels

 Production possibility graph - shows an alternative way to use resources

Increasing opportunity cost - the opportunity cost of producing an additional unit of a product increases as more of that product is produced

If the graph is concave (bowed out), then 4 assumptions can be made

1. fixed technology
2. fixed resources
3. full employment efficiency and productive efficiency
4. -

Productive efficiency - producing at the lowest cost
     ~efficiently allocate resources and full employment of resources

Allocative efficiency - combination of the most desired by society or those in charge of economic decisions