ECN104 Notes 2012 Alvina Gilani
Economics is the social science concerned with the efficient use of
scarce resources to achieve the maximum satisfaction of economic
Ceteris Paribus (Other Things Equal): It is assumed that all other variables
except those under immediate consideration are held constant for a
Microeconomics focuses on the individual parts of the economy.
Macroeconomics looks at the economy as a whole.
Positive statements are statements that attempt to
describe the world as it is
Normative statements are statements about how the world should be:
Two Fundamental Facts together constitute the economic problem and
provide foundation for economics:
1‐) Society’s wants are unlimited and insatiable
2‐) The resources for producing goods and services are scarce.
Utility: the satisfaction or pleasure a consumer obtains from the
consumption of a good or service.
Budget Line: finite amount of income (let say $120) to be distributed over
two goods (DVD and Book)
Economic resources: all natural, human, and manufactured resources that
go into production of goods and services.
Property resources: land, property, buildings, investmentsj
Human resources: Labour: all physical and mental talents and efforts of
individuals used in production
These four resources are called the factors of production.
Land ← Rent
Capital ← Interest
Labour ← Wage
Entrepreneurial Ability ← Profits or Loss
Capital goods vs. Consumer Goods
Consumer goods satisfy wants directly while capital goods do so indirectly by
aiding the production of consumer goods.Two kinds of efficiency:
Productive Efficiency: production of goods and services in the least costly
Allocative Efficiency: production of goods and services most wanted by
Law of Increasing Opportunity Cost Opportunity Cost: The amount of
other products that must be
sacrificed to obtain one of specific good
Opportunity cost increases with amount produced: As we make more
pizzas, the # of robots we have to give up (per pizza) increases
Marginal Benefit: the extra benefit associated with consuming one more
Marginal Cost: the extra opportunity cost of that extra unit
Resources are being efficiently allocated when MB=MC.
If MB>MC, too few is produced
If MC>MB, too many is produced
2 ECONOMIC SYSTEMS:
o Private individuals and firms own l