Economics- social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
Microeconomics = individuals
Scarcity- condition where the resources are limited to our wants for them.
Scarce good- economic good = good for which you can’t get all you want @ zero cost.
Free good- you can get all you want at zero cost.
Cost .vs. Price
Cost -sacrifice associated with making a choice (paid by product)
Price -signal telling producers what and how much to produce (paid by consumer)
Types of Cost 1. Explicit costs- out of pocket, monetary payments 2. Implicit/ opportunity cost- most values option forgone. “what you gave up” 3. Economic Cost a. Explicit + implicit costs
Resources- inputs used in production of goods and services
1. Natural- land, oil, lumber 2. labor- physical and mental talent used in production 3. capital- all manufactured goods used in production. * * How do we make choices? * -maximize our utility using marginal decision making. * * Utility- satifaction a consumer obtains from consumption of a good or service. * * Marginal- additional; change that results from additional units. * * Utility maximization by producers and consumers usually maximizes social welfare.
Use economic principles to create models to analyze and predict behavior.
Economic principles- statements about economic behavior or economy that enable prediction of the probable effect or certain actions. (many principles)
Model- simplified representation of how something works.
Circular flow (ch 2)
Product Markets * Households Firms * Resource markets
market- any institution that brings together buyers and sellers of a particular good or service
In PRODUCT MARKETS, households demand goods and ervices which are supplied by firm in exchange for money.
In RESOURCE MARKETS, firms demand resources which are supplied by households in exchange for money.
Table showing how much of a good or service consumers will want to buy at various prices. * * $ | * $100 | * $80 | * $60 | * $40 | * $20 | * $0 | * Quantity | * 0 | * 40 | * 80 | * 120 | * 160 | * 200 | * *
Law of Demand- price of a good and the quantity demanded are inversely related. *
Demand Curve- a line showing the maximum that consumers are willing to pay for any quantity
Demand- relationship between P & Q
Quantity demanded- # of units consumers are willing to buy at a specific price.
Change in quantity demanded ( ∆Qd)
Change in amount purchased caused by price
* Demand doesn’t change, just quantity demanded*
change in demand a shift of the entire curve to the left or right
left = decrease in demand right = increase in demand
factors that shift the demand curve 1. income a. normal goods- goods which income and demand move together b. inferior goods- goods which income and demand move opposite directions * * only way to determine classification of the good is by the relationship between income and demand * * change in income -> change in demand
2. Price of Related Goods substitutes- goods that take the place of each other in consumption price of one good and the demand for the other move together complements- goods that are used together in consumption the price of one good and the demand for the other move opposite
demand for PB when price of JELLY (a complement) falls? price of jelly falls then demand in PB increases.
3. Expectations of