Microeconomics chapter 1 notes PDF

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Microeconomics chapter key terms, resources, & class notes

Chapter 1 Economics: the study of how people, individually and collectively, manage resources Microeconomics: the study of how individuals and firms manage resources Macroeconomics: the study of economy on a regional, national, or international scale Scarcity: the condition of wanting more than we can get with available resources

Important performance measurements -

Gross Domestic Product (GDP) ➔ measurement of national income Unemployment Rates Consumer Price Index (CPI)

Opportunity cost: the value of what you have to give up in order to get something; the value of your next-best alternative. i.e. The opportunity cost of taking a vacation instead of spending the money on a new car is not getting a new car (https://www.youtube.com/watch?v=x-hYzRncxTc&ab_channel=MarginalRevolution University)

Marginal decision making: comparison of additional benefits of a choice against the additional cost it would bring, without considering related benefits and costs of past choices (the idea that rational people compare the additional benefuts of a choice against the additional costs, without considering related benefits and costs of past choices). A few examples in video (https://www.youtube.com/watch?v=-EEl5AIq4sY&ab_channel=PersonalFinanceinth eElementaryGrades) Sunk cost: costs that have already been incurred and cannot be recovered or refunded Incentives: something that causes people to behave in a certain way by changing the trade-offs they face Positive statement: a statement that makes a factual declaration about how the world actually works Normative statement: a statement that makes a claim about how the world should be

Class #1 Economic resources Resources: tangible and intangible things: cash, land, time, ideas, technology, experience, relationship

↪ Land: natural resources or any derivative thereof crops, minerals, land itself (on which buildings and structures lie)

↪ Labour: human effort ↪ Capital: something that is used to make something else i.e. structures, vehicles, plant & equipment, machinery It is not altered or consumed in the production process, but it does depreciate. Even though there are illimited wants for these resources, they’re only available in limited quantities, because we have limited means to produce. The Market Economy The two main economic actors are consumers and producers who interact to create the market.

Market economy: an economy in which private individuals, rather than a centralized planning authority, make the decisions 3 coordination tasks of any economy 1. What goods and services should be produced, and in what quantities? 2. How should they be produced? In other words, what is the technology? 3. For whom are the goods and services produced? Key features of a market economy ➔ The decentralized fashion in which consumption, production, and exchange decisions are made. ➔ It is extremely inegalitarian  ➔ It is efficient in that shortages and surpluses are eliminated, and production of goods and services is in line with society’s needs and wants and is maximized in the face of scarcity ➔ It is dynamic as it adjusts rapidly to changes in technology, consumer tastes, demography The command Economy Command economy: an economy in which production, investment, prices, and incomes are determined centrally by a government.

↪ It executes the three essential tasks in a centralized fashion. All allocative decisions made at headquarters. Robinson Crusoe: simplest economy with one producer and consumer.

Tribal economy: an economy where all members are assigned producer roles and get a share of the consumer roles.

Mixed economy : an economy where elements of both market and command economies. Often countries that appear purely market still have large public government run public sectors....