Please enable JavaScript.
Coggle requires JavaScript to display documents.
INTRODUCTION OF ECONOMICS (10 Principle of economics (How people can make…
INTRODUCTION OF ECONOMICS
10 Principle of economics
How people can make decisions??
1.People face trade-offs
-To get one things,we have to give up another things
2.The cost of something is what you give up to get it
-
Require compaing costs and benefits
3.Rational people think at the margin
-Make comparison by comparing costs and benefits at the margin
4.People respond to incentives
-Benefits motivate people to rspond
How people interact with each other**
5.Trade can make everyone better off
-Allows people to speacialize in what they do best
6.Markets are usually a good way to organize economic activity
- Allocates resources through the decentralized decisions at many firms and household as they interact in market for goods and services
7.Government can sometimes improve economic outcomes
How the economy as a whole works
8.A country's standard of living depends on its ability to produce goods and service
9.Prices rise when the government prints too much money
- will cause inflation
10.Society faces a short-run trade-off between inflation and unemployment
Economic Models
The Circular Flow Diagram
Visual model of the economy that shows how dollars flow through markets among households and firms.
MARKETS FOR FACTORS OF PRODUCTION
: Households sell
Firms buy
MARKETS FOR FACTOR OF PRODUCTION
: -Firms sell
-Households buy
HOUSEHOLD
:Buy and consume goods and service
Own and sell factors of production
FIRM
:Produce and sell goods and services
Factors of production
Inputs used to produce goods and service
Land
Labor
Capital
The Production Possibilities Frontier
Graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production and the available production technology.
Y
is an output combination that is not yet attainable as it lies beyond the PPF
A,B, and C
are all efficient output combination s as the lie on the existing PPF
X
are inefficient combination for example not all resources fully utilized
Concept illustrated by the production possibilities frontier
Efficiency
Trade-offs
Opportunity cost
Economic Growth
INTERDEPENDENCE AND THE GAINS FROM
How Trade Expands the Set of Consumption Opportunities
2 ways to measure differences in costs of production
-Hours of requires to produce a unit of output
-The opportunity cost of sacrificing one good for another
Absolute Advantage
Comparison among producers of a good according to their productivity
Comparative Advantage and Trade
Opportunity are the basis for specialized production and trade
Whenever potential trading parties have difference in opportunity costs,they can get each benefit from trade
