Introduction to Economics (10 Principles of economics (markets are usually…
Introduction to Economics
Economy means one who manages a household.
Economics means how society manages its scarce resources.
The circular flow diagram---a visual shows how dollars flow through markets among households&firms.
market for goods&services----activity of buying&selling goods occur between seller&buyer at the particular time.
market for factors of production-------the sale transaction producer factors such as labor, capital& land.
flow of input&outputs-----the flow of goods as well as the factors of production.
flow of dollars-----revenue flow of factors of production& household spending.
households offer factors of production such as labor,capital & land to firm.
the firms hire factors of production to produce goods &service.
firm pay an average income to households as wages,rent,&profit.
households receive an average income to purchase goods &services.
Absolute Advantage----the comparison among producers of a good according to their productivity.---smaller quantity of inputs to produce a good have an absolute advantage in producing that goods.
10 Principles of economics
markets are usually a good way to organize economic activity
governments can sometimes improve market outcomes
trade can make everyone better off
a country standard of living depends on its ability to produce goods & services
people respond to incentives
prices rise when the government prints too much money
rational people think at the margin
society face a short-run trade-off between inflation&unemployment
the cost of something is what you give up to get it
people face trade-offs
The Production Possibilities Frontier-----a graph that shows the combinations of output that can possibly produce given the available factors of production and the available production technology.
Comparative Advantage----2 ways to measure differences in costs of production: a) the number of hours required to produce a unit of output. (ex:1 pound of potatoes) b) the opportunity cost of sacrificing one good for another.