Summary Economics

ECONOMICS



PART
1

Chapter
1



Definition
of
Economics

=
social
science
that
studies
the
choices
individuals,
governments
and
entire
societies

make
as
they
cope
with
scarcity
(inability
to
satisfy
al
our
wants)
and
the
incentives

(reward
that
encourages
or
penalty
that
discourages
an
action)
that
influence
and

reconcile
those
choices.

Two
main
parts:

Microeconomics:
study
of
choices
individuals
and
businesses
make,
the
way
choices

interact
in
markets
and
the
influence
of
governments

Macroeconomics:
study
of
performance
of
national
economy
and
global
economy



What
is
Economics
about

goods
and
services

factors
of
production:


(Land/
Resources/
Material)


Labour
à
L


Capital
à
K


Entrepreneurship/
Business
Plan/
technology
à
A


à
form
Factor
Market

output/
Gross
Domestic
Product
(GDP)
à
y

à
Goods
&
Services
Market



Labour
à
Wages

Capital
à
Interest
Rate

Entrepreneurship
à
Profit



Self-­‐Interest
:
choices
made

for
best
option
for
oneself

Social
Interest:
choices
made
with
best
outcome
for
society
as
a
whole
à
efficiency
&

equity/
fairness



Trade
Off:
exchange,
cost-­‐benefit
outweigh;
is
mankind
rational?

Opportunity
Cost:
highest-­‐valued
alternative
that
must
be
given
up
to
get
sth.

Margin:



marginal
benefit
MB:
benefit
arising
from
increase
in
activity
(à
consumer)


marginal
cost
MC:
opportunity
cost
of
increase
in
activity


marginal
revenue
MR
(à
firm)


marginal
product
labour
MPL



Expenditure
Approach
(à
Siehe
script)

Rule
of
Decision
Making
(à
Siehe
script)

Law
of
Diminishing
Return
(à
Siehe
script)







, Chapter
3
Demand
And
Supply



Market
=
unorganised
collection
of
buyers
(D)
and
sellers
(S)

1. Factor
Market
(Siehe
oben)

2. Financial
Market
(erst
spatter
discussed)

3. Goods
&
Services
Market
(Siehe
oben)



Types
of
markets:

1. Perfect
competition/
Competitive
market

2. Monopoly

3. Oligopoly

4. Monopolistic
Competition



Characteristics
of
a
competitive
market:

1. Homogeneous
(products
the
same)

2. >
S
>
D
(many
suppliers
and
much
demand)

3. Transparent
(informed
buyers
and
sellers)

4. Free
Exit,
free
entry



Demand

want
à
can
afford
à
plan
to
buy
(quantity
demanded)

law
of
demand/
ceteris
paribus:

Other
things
remaining
the
same,
the
higher
the
price
of
a
good,
the
smaller
is
the

quantity
demanded;
and
the
lower
the
price
of
a
good,
the
greater
is
the
quantity

demanded.

à
substitution
effect:
when
opportunity
cost
of
good
rises,
people
buy
alternatives

à
Income
effect:
quantity
bought
deceases
when
income
remains
but
price
increases

Demand
Curve:
illustrates
demand
(relationship
price-­‐quantity
demanded)

Marginal
Benefit
Curve

Demand
Schedule

!
Quantity
demanded:
point
on
demand
curve
à
quantity
demanded
at
particular
price

Willingness
and
Ability
to
Pay
Curve

Change
in
demand
because
of
changes
in
prices
of
related
goods,
expected
future
prices,

income,
expected
future
income,
population,
and
preferences



Supply

quantity
supplied;
measured
an
amount
per
unit
of
time

minimum
supply
price
curve

law
of
supply/
ceteris
paribus

Other
things
remaining
the
same,
the
higher
the
price
of
a
good,
the
greater
is
the

quantity
supplied;
and
the
lower
the
price
of
a
good,
the
smaller
is
the
quantity

supplied.

à
increased
quantity
produced
à
marginal
cost
of
production
increases
à
price
has
to

increase
to
cover
costs

supply
curve

marginal
cost
curve
(graph)

supply
schedule
(table)

Change
in
supply:
changes
in
prices
of
factors
of
production,
prices
of
related
goods

produced,
expected
future
prices,
number
of
suppliers,
technology
and
state
of
nature