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Economics
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the discipline that studies how efficient decisions are made
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Efficient decisions
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choosing the most valuable alternative
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theory of revealed preference
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our choices reveal our values
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characteristics of value
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Value depends on the situation
Value is different for different people
Subsequent units of the same good have less value.
Value is different for different people
Subsequent units of the same good have less value.
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optimal arrangement principle
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The idea that we first choose the best, then the second best, and so on
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Value of something to an individual
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the most that individual is willing to sacrifice to obtain that something
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cost
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the value of the best alternative which is sacrificed when a decision is made
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no-free-lunch principle
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Since any decision has at least two alternatives, choosing an alternative means that one must sacrifice at least one other alternative. That is, any decision involves costs.
No matter what, there is a cost of the free lunch to someone
No matter what, there is a cost of the free lunch to someone
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Macro economics
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The study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment
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Marginal Value
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the value of the individual units of that something.
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marginal analysis
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analysis that involves comparing marginal value and marginal costs
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law of diminishing returns
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When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
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Demand
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The relationship between the possible prices of something and the quantities people are willing to buy, other things equal
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Supply
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the relationship between the possible prices of something and the quantities that people or firms are willing and able to sell, other things equal.
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Equilibrium Price
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consumers can buy all they want and, at the same time, firms can sell all they want.
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Social Gain
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Total Value - Total Cost
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Consumer Gain
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Total Value - Total Amount Paid
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Producer Gain
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Total Amount Paid - Total Cost
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The Economic Problem
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allocating scarce resources to their best uses
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Changes in Supply
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are shifts in the supply curve
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Changes in demand
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are shifts in the Dommand curve
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