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economics
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a social science that studies how people, firms, and societies make optimal choices order conditions of scarcity
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scarcity
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lack of resources
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Adam Smith
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professor of moral philosophy
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poverty
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extreme level of scarcity, can't satisfy needs to survive
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opportunity cost
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whatever must be given up to obtain some item
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people maximize
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utility
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firms maximize
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profit
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societies maximize
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welfare
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scientific method
answer
ask a question
hypothesize
experiment
gather data
draw conclusion
hypothesize
experiment
gather data
draw conclusion
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problems with scientific method
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confounding factors
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correlation
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appearance that two variables are related
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causation
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can prove that a change in one variable leads to change in another variable
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resources
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land, labor, capital, entrepreneurship
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land
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earns rent
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labor
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earns wages
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capital
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earns interest
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entrepreneurship
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earns profit
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efficiency
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avoidance of waste
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productive efficiency
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the production of a good in the least costly way
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allocative efficiency
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the particular mix of goods and services most highly valued by society
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economic questions
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what to produce? how to produce? for whom to produce?
how to accommodate change? how to promote progress?
how to accommodate change? how to promote progress?
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economic systems
answer
command system
market system
market system
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market characteristics
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private ownership of resources
property rights
contracts
economic freedoms
self-interest
competition
price serves as signal between buyers/sellers
strong reliance on technology and capital
specialization
money serves as medium of exchange
govt plays an active but limited role
property rights
contracts
economic freedoms
self-interest
competition
price serves as signal between buyers/sellers
strong reliance on technology and capital
specialization
money serves as medium of exchange
govt plays an active but limited role
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market
answer
any institution or mechanism that brings together buyers (demanders) and sellers (suppliers)
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complements
answer
as $ goes up, demand for the other goes down
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demand
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A schedule or curve that shows the quantity demanded at various prices, within a period of time, ceteris paribus
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law of demand
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there is an inverse relationship price and quantity demanded
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a change in price
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change in quantity demanded
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determinants of D
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income
tastes/preferences
expectations
price of related goods
# of buyers
tastes/preferences
expectations
price of related goods
# of buyers
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supply
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a schedule/curve showing the quantity supplied at various prices, within a period of time, ceteris paribus
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law of supply
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there is a positive relationship between price & quantity supplied
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determinants of supply
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resource prices
technology
expectations
# of sellers
taxes and regulations
technology
expectations
# of sellers
taxes and regulations
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market equilibrium
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the price at which the quantity demanded equals the quantity supplied
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elasticity
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a measure of responsiveness between two variables
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