Unit 1 chap 1-4

Economy originally coming from Greece:

the limited nature of a society’s resources, because of this society cannot produce all the goods and services people wish to have. It is the fundamental aspect of economics.

the study of how society manages its scarce resources

Economics studies how

requires trading off one goal against another

society is getting the maximum benefits from its scarce resources, you can imagine it as the size of the economic pie.

distributing economic prosperity uniformly among the members of society, you can imaged it as how the pie is divided

Whatever must be given up to obtain some item.

systematically and purposefully do the best they can to achieve their objectives given their available opportunities.

small incremental adjustments to a plan of action

the comparison of marginal benefits and marginal costs

the choices and decisions that involve changes in existing affairs.

Economics is grounded on the assumption of

individuals make different choices under different circumstances with this changing as the costs and benefits change.

something that induces a person to act, an example of this is when prices are as buyers consume less allowing the sellers to produce more.

This changes the costs or benefits along with people’s behavior. This can result in unintended consequences.

allows each person to specialize in the activities they are the best at and allow us to enjoy a greater variety of goods and services.

through decentralized decisions of many firms and households as they interact with the market guided by the goods and services price and self-interest. Though this is not completely free in America with restrictions on what, who and how on the goods and services (can not make drugs).

No one is looking out for the economic well-being of society as a whole but it has proven remarkably successful in organizing economic activity to promote overall economic well-being.

this is how households and firms interact in markets by acting as if they were being guided by an ‘invisible hand’ which leads them to desirable market outcomes.

the government intervention in the market, in Adam Smith’s ‘invisible hand’ this prevents its ability to coordinate the decisions of the households and firms that make up the economy.

We need the government in the market to:

the impact of a person's actions on the well-being of a bystander, a example of this is pollution

The ability of a single economic actor be it small or big/a group of them to have a substantial influence on market prices

Disparities in economic well being is effect by two things:

There is a large difference in living standards among countries that can see with thei

Over time the u.s income have historically

the quantity of goods and services produced from each unit of labor input with this being higher meaning the higher the standard of living is for that country.

The growth rate of the nation’s productivity determines

it stimulates the overall level of spending and the demand for goods and services, with firms raising prices, hiring more workers, producing more goods and services and lower unemployment.

over a period of a year or two, many economic policies push inflation and unemployment in opposite directions. A key role of macro economics is to analyze this business cycle.

simplify the complex world and make it easier to understand a example of this is when studying international trade assume two countries having two goods, but it is unrealistic but it is simple to learn and giving useful insights about the real world

a highly simplified representation of a more complicated reality. Economists use this to study economic issues

a visual model of the economy, shows how dollars flow through markets among households and firms. In it there are two types of actors: households and firms and two markets, the market for goods and services and the market for factors of production.

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. For example it could show how many cars can be produced along with computers.

The curve on the PPF can increase by

if the curve on a PPF is linear then

the study of how households and firms make decisions and how they interact in markets.

the study of economy-wide phenomena, including inflation,unemployment and economic growth.

claims that attempt to describe the world as it is I.E: Minimum-wage laws cause unemployment.

claims that attempt to prescribe how the world should be I.E: The government should raise the minimum wage.

Economists may disagree about the validity of alternative positive theories of how the world works.
Economists may have different values and therefore different normative views about what government policy should aim to accomplish.

exists when a person can produce more of a certain good/service than someone else in the same amount of time or with fewer resources

exists when a country can produce more of a good/service than another country can in the same time period

exists when an individual or nation can produce a good/service at a lower opportunity cost than can another individual or nation.This is what trade is based on.

individuals and countries can be made better off if they produce what they have a comparative advantage and then trade with others for whatever else they want/need.

goods and services that are produced abroad and sold domestically

goods and services that are produced domestically and sold abroad

refers to the behavior of people as they interact with one another in competitive markets.

a group of buyers and sellers of a particular good or service, the buyers determine the demand for the product and the sellers determine the supply of said product. They exist whenever goods and services are exchanged and don't have to be a physical place.

a market in which there are so many buyers and so many sellers that each has a negligible impact on the market price.

To reach a perfectly competitive market they must have these two characteristics:

Non price determinants of demand or The “Ceteris Peribus” (8)

the more you like something the more often you buy it causing the demand to increase

what you think may happen in the future can also affect the demand. If you expect to earn a higher income next month, you may choose to save less now and spend more of your current income on ice cream. If you expect the price of ice cream to fall tomorrow, you may be less willing to buy an ice-cream cone at today’s price.

the more people who want to buy something the demand for that thing increases.

If you have a change in your income this will also affect the demand, losing a job or being paid less will cause it to fall while the opposite will cause it to increase.

a good for which an increase in income raises the quantity demanded

the demand for a good rises when income falls a example of this is bus rides, when your income falls you less likely to have a car so will take the bus more

two goods for which an increase in the price of one leads to an increase in the demand for the other like compliments they are paired with other goods such as hot dogs and hamburgers, sweaters and sweatshirts, and movie tickets and film streaming servies

wo goods for which an increase in the price of one leads to a decrease in the demand for the other like substitutes they are paired with other goods such as gasoline and automobiles, computers and software, and peanut butter and jelly.

of any good is the amount of the good that buyers are willing and able to purchase (how many of a thing can a single person can buy given the price)

the claim that the quantity demanded of a good falls when the price of good rises, other things equal

a table that shows the relationship between the price of a good and the quantity demanded.

the line that relates the price and quantity of the demand on a demand graph made with the demand schedule

A change in price only change the

the amount of a good that sellers are willing and able to sell

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

a table that shows the relationship between the price of a good and the quantity supplied

a graph of the relationship between the price of a good and the quantity supplied

how much the supplier need to spend to make the produced, the higher the cost it is to make the product the lower the supply will be

this affect the supply curve by automating making the product thus lowering the labor/time needed for it to make the product thus increasing the supply

what the firms expect of the future with the price of a product increasing cause the firm to put some of it into storage thus lowing supply

the market supply depends on the number of sellers, if a seller leaves then the market supply would fall.

is the supply of all individual sellers combined

a situation in which the quantity supplied is greater than the quantity demanded

a situation in which quantity demanded is greater than quantity supplied

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Steps to analyzed changes in the equilibrium: