1. Economics: how society allocate scarce resources in order to satisfy unlimited wants
2. Scarcity: the situation in which the unlimited wants exceed the limited resources available to satisfy these wants.
3. Resource: that is used to produce the goods and services
a. natural resource (water, land, materials)---rent
c. capital (building, machine)---interest
d. entrepreneurial ability---profits
4. Fallacy of composition: “what is true for individual is true for the group”, distinguishing micro and macro
5. Positive statement & normative statement
a. Positive statement can be verified by reference to fact
b. Normative statement involving opinion, cannot be tested
6. Economic models
7. Ceteris paribus means all other factors remain constant.
8. The economics problem is regarding the choices made by people due to the unlimited wants against limited resources.
9. Trade off: producing more A means producing less B.
10. Trade off force society to make choice
a. What to produce
b. How to produce
c. For whom
11. Opportunity cost
12. Three key assumption of economics
a. People are rational: people uses as much as available information to achieve their goals
b. People respond to economic incentives: people begin act from a variety of motives (religious)
c. Optimal decisions are made at the margin (maximum net benefit, as marginal benefit = marginal cost)
13. Marginal analysis
a. MB>MC: positive net benefit
b. MB=MC: maximum net benefit
c. MB<MC: negative net benefit
14. Production possibility frontier (PPF)
a. Assumption: given time, technology, fixed supply & resources and two items
c. Whether resources are suitable to produce one item
d. Shifts in the PPF as (change in the amount of resources)
15. Centrally planned economy VS market economy
a. Centrally planned economy, government decide how to allocate the economic resources
b. Market economy, the allocation of the economic resources are caused by the interaction of cosumers and suppliers (consumer sovereignty---consumer decide what goods and services will be produced; suppliers must meet the consumers’ wants)
c. Mixed economy, market play a dominant role in economy, but government will intervenes economy occationally.
16. Efficiency and equity
a. Productive effeciency: producing goods and services using the least amount of resources
b. Allocative effeciency: resources are allocated regarding on what consumers demand
c. Dynamic efficiency: adoption of new technology to improve productivity
d. Voluntary exchange:
17. Comparative advantage and trade
a. Trade: the interaction between the buyer and seller in the market.
b. Absolute advantage VS comparative advantage
i. Absolute advantage: two competitors with the same amount of resources, one produce more than another ii. Comparative advantage: two competitors with the same amount of resources, one has lower opportunity cost than another to produce a good (eg. Picking cherry and apple)
1. Reasons for government intervention
a. Inefficient operation of the market
i. Legal system to enforce contract ii. Imperfect information iii. Natural monopoly iv. Externality and common resources
v. Market fail to develop (public good)
b. Social reasons
i. Merit good (less merit goods---museum, more demerit good---drugs ) ii. Distribute income unfairly
2. Market = set of arrangements or mechanisms which allow buyers and sellers to engage in voluntary exchange
3. Competitive market
a. Many buyers and seller
b. Perfect information
c. Free to entry and exit from market
d. Products are not different in the market
4. Demand: the relation between the quantities of an item consumers willing and are able to buy at the possible price, during a given period, ceteris paribus.
5. Supply: the relation between the quantities of an item firms are willing and able to supply at the possible price, during a given period, ceteris paribus.
6. Factors to affect demand
a. Price of good
b. Income level
c. Substitutes and