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Economics chapter 1 & 2 summary
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Principles of economics, year 1 IBMS block 1. Chapter 1 and 2
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Economics chapter 1The economic resources needed to make goods and services are in limited
supply. This Scarcity restricts options and demand choices.
Society could have used these resources to produce something else, it
sacrifices those other goods and services in making for example a lunch
available. Economist call such sacrifices opportunity costs.
Utility: The pleasure, happiness or satisfaction obtained from consuming a
good or a services.
Consumers are purposeful in deciding what goods and services to buy.
Business firms are purposeful in deciding what products to produce and
how to produce them. Governments entities are purposeful in deciding
what public services to provide and how to finance them. This is
Purposeful behaviour. It simply means that people make decisions with
some desired outcome in mind.
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Example Marginal benefit:
To economist marginal benefit means ‘extra’, ‘additional’ or ‘change in’.
Should you attend school for another year? Should you study an extra hour
for an exam? Should you supersize your fries? Similarly should a business
expand or reduce its output? Should government increase or decrease its
funding got a missile defense system? Each choice / option involves
marginal benefit and, because of scare resources marginal costs. If you
would buy a large-size diamond means forgoing some other product. An
opportunity cost the value of the next best thing forgone. You can’t buy
another new earrings if you buy the large-size diamond, but if you buy
small-size diamond you can buy the earrings. So at the first example your
forgo those earrings for a large-size diamond.
Scientific method:
Economic principles:
a statement about economics behaviour or the economy that enables
prediction of the probable effects of certain actions.
Generalizations:
a generalization is defined as a broad statement or an idea that applies to
a group of people or things. Oftentimes, generalizations are not entirely
true, because there may be examples of individuals or situations wherein
the generalization does not apply.
Other-things-equal assumption:
You can also say ceteris paribus the assumption that factors other than
those being considered do not change.
, Graphical expression:
Economics story’s expressed in graphics.
Microeconomics:
Part of the economics concerned with decision making by individual
customers, workers, households and business firms. Measure the price of a
specific product, the number of workers employed by a single firm, the
revenue or income of a specific firm, government entity, or family. Exam
the rocks, sand and shells not the beach.
Macroeconomics:
Focuses its attention on economic growth, the business cycle, interest
rates, inflation and the behaviour of major economic aggregates such as
the government, household and business sectors. Aggregate is collection
specific economic units treated as if they were one unit. Like the millions
of consumers in the US economy are treated like if they were one unit
called ‘consumers’.
You can’t put every subject in micro or macro many topics are rooted in
both.
Example: while the problem of unemployment is usually treated as macro
topic(because unemployment relates to aggregate production). Economist
recognise that the decision made by individual workers on how long to
search for jobs and the way specific labor markets encourage or impede
hiring are also critical in determining the unemployment rate.
Positive economics:
Focuses on facts. Avoids value judgements. Concerns what is.
Normative economics:
Values judgements about what the economy should be like or what
particular policy actions should be recommend to achieve a desirable goal.
Concerns subjective feelings about what ought to be. Whenever ‘ought’ or
‘should’ is used its very likely that it is normative statement.
Economizing problem:
The need to make choices because economic wants exceed economic
means.
Necessities:
food, shelter and clothing.
Luxuries:
perfumes, yachts and sport cars.
Budget line:
It is a schedule or curve that’s shows various combinations of two products
a consumer can purchase with a specific money income.
Example:
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