Microeconomics Ch.1,2,3,4

making optimal choices under conditions of scarcity

the satisfaction of the nth (next) unit
ex: first pizza is amazing, next is just ok

the loss of potential gain
ex: free lunch is never free

the benefit of the nth unit

the cost of the nth unit

observe -> formulate hypothesis -> test the hypothesis -> accept, reject, modify the hypothesis -> continue to test if necessary
ex: the price is too high nobody wants it, put a discount on it (how sales work)

an assumption that all things will remain constant
ex: no wars over time of prediction

specific types of industries or certain types of individuals are examined

basic subdivisions of the economy like government, households, businesses, and international trade

based upon facts
ex: GDP per capita

based on what "ought to be"
ex: raise minimum wage to combat poverty

how much of one good must be sacrificed to get more of another good
ex: DVDs and books

shift right: income increase
shift left: income fall

land, labor, capital (tools), entrepreneurial ability (people who put it all together)

leader taking initiative, risk
ex: henry ford

maximum combinations of two goods that can be produced with the resources available
ex: pizzas and robots, butter and guns

enables countries to specialize in the production of goods which they produce more efficiently than other countries, a country cannot live off its own resources so it allows them to trade efficiently + rightward shift in PPC
ex: Idaho has potatoes -> trades to Florida for oranges

are a set of institutional arrangements and a coordinating mechanism to solve economic problems, differ in two important ways: who owns the factors of production and the method used to coordinate economic activity

government ownership, what is produced, how much is produced and the prices that are charged for the output are determined by the central planning board
ex: Iran, Libya

individually ownership, each participant acts in his or her own self-interest and in pure capitalism the government plays a very limited role
ex: UK, Australia, Switzerland

1)private property
2)freedom of enterprise
3)self interest
4)competition
5)markets and prices

enables individuals and businesses to obtain, control, use, and dispose of this property

enables individuals to produce products of their choice

entrepreneurs try to maximize profits or minimize losses; resource suppliers try to maximize income; consumers maximize satisfaction

this characteristic reflects that the decisions made on each side of the market determine a set of product and resource prices that guide owners

"father of economics", emphasis on the role of self‑interest in motivating economic activity is especially important

self-interested behavior of both the business and the suppliers of resources result in the greatest amount of economic efficiency possible, market system guides resources into the production of the goods and services most desired by society

failures along the supply chain were common because one factory's output was another factory's input, a failure at any step along the way would cause a chain reaction

a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business

a business owned and operated by two or more people

an independent legal entity that can engage in any legal business activity

other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls

the want of a certain product
ex: people want more jobs every year

the increase in price of a product can decrease demand
the decrease in price of a product can increase demand

supply is the amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are willing to provide to the marketplace

other things equal, as the price rises, the quantity supplied rises and as the price falls, the quantity supplied falls

supply will shift right if costs decrease supply will shift left if costs increase

change in buyers tastes, change in number of buyers, income, consumer expectations, and the price in related goods (decrease in DVD players, decrease in DVD movies)

resource prices, technology, number of sellers, taxes and subsidies, prices of other goods (the price of cucumbers go up and decreases the supply of watermelon), and consumer expectations

where the supply curve and demand curve intersect, max efficiency

prices above this equilibrium, note that there is an excess quantity supplied, or a surplus

prices below this equilibrium, note that there is an excess quantity demanded, or shortage

ability of the competitive forces of demand and supply to establish a price at which selling and buying decisions are consistent

producing goods in lowest cost possible, best technology, using a good mix of resources

producing the right mix of goods, combination of goods most highly valued in society

set below equilibrium, rationing problems + black markets
ex: rent control

set above equilibrium, chronic surplus
ex: minimum wage