Econ 010A (Chapter 1: What is Economics? ( Resources (Resources are the…
Chapter 1: What is Economics?
What is Economics?
According to one standard definition, economics is concerned with the way resources are allocated among alternative uses to satisfy human wants
a. Human wants versus human needs
Resources are the things or services used to produce goods, which then can be used to satisfy wants.
a. Free resources versus economic resources
b. Economists classify economic resources into three categories
c. Scarcity. It is the basic problem in economics.
Technology and Choice
Technology is society pool of knowledge concerning the industrial arts. It includes the knowledge of engineers, scientists, artisans, managers, and other concerning how goods and services can be produced.
Due to the basic problem of scarcity, every society faces four fundamental choices.
The Central Questions in Economics
Opportunity Cost: A Fundamental Concept
Opportunity cost or alternative cost is the value of what certain resources could have produced had they been used in the best alternative way.
The Impact of Economics on Society
Economics has influenced generations of political leaders, philosophers, and ordinary citizens and has played a significant role in shaping our society today
Positive Economics versus Normative Economics
a. Positive Economics
Positive Economics contains descriptive statements, propositions, and predictions about the world
b. Normative Economics
Normative Economics, on the other hand, makes statement about what ought to be or what a person, organization, or nation ought to do. For instance, a theory might say that Chile should introduce new technology more quickly in many of its copper mines
The Methodology of Economics
Like other types of scientific analysis, economics is based on the formulation of models.
A model is a theory. It is composed of a number of assumptions from which conclusions - or predictions - are deduced
Several important points concerning models
To be useful, a model must simplify the real situation. The assumption made by a model need no be exact replicas of reality
The purpose of a model is to make the predictions about the real world; in many respects, the most important test of a model is how well it predicts
To predict the outcome of a particular event requires the use of the model that predict best, even if that model does not predict very well.
Economic Measurement (Econometrics)
Graph and Relationships
Generally speaking, demand curves trend downwards as price decrease and quantity increases
Generally speaking, supply curves trend upwards as price increases and quantity increases
The Task of an Economic System
Chapter 2: Markets and Prices
What Market Demand and Market Supply Curves Show
The distinction between shifts in a commodity's demand or supply curve and changes in the quantity demanded or supplied of the commodity
The significance of equilibrium price.
How the price system accomplishes the four basic tasks of an economic system, and from what general limitations the price system suffers
The effects of shifts in the demand and supply curves
Consumers, Firms, and the Market
Consumers are individuals or households that purchase the goods and services produced by the economic system
Firms are organizations that produce goods or services for sale to the consumers in an attempt to make a profit
Market is a group of firms and individuals in touch with each other to buy or sell some good or service
Demand side of a market
Price trends downwards as quantity rises. Inverse graph
The Supply Side of a Market
Quantity produced tends to rise as prices rise
Actual Price is the price that counts in the real world.
The price system and the determinations of:
What is produced?
How goods are produced?
Who gets what?
How fast is economic growth?
The Circular Flows of Money and Products
In product markets, consumers exchange money for products and firms exchange products for money. In resource markets, consumers exchange resources for money and firms exchange money for resources.
Limitations of the Price System
Distribution of Income: There is no reason to believe that the distribution of income generated by the price system is fair or, in some sense, best. Therefore, the general principle that the government should step in to redistribute income in favor of the poor is generally accepted in the United States today
Public Goods: Some goods and services cannot be provided through the price system because there is no way to exclude citizens from consuming the goods whether they pay them or not. For example, there is no way to prevent citizens from benefitting from national expenditures on defense, whether they pay money toward defense or not.
External economies: A situation occurs when consumption or production by one person or firm results in uncompensated benefits to another person or firm
External diseconomies: An external diseconomy is said to occur when consumption or production by one person or firm results in uncompensated costs to another person or firm. For example, a firm dumps pollutants into a stream and makes the water unfit for use by firms and people downstream.
Externalities are external economies and diseconomies
Types of Capitalism
Pure Capitalist - No government intervention
Laissez-Faire - "Free market" Some government intervention
Mixed capitalist - Private and government intervention
Equations and variables
Pr=Price of Resources
AC=Average Cost Per Unit