Econ: studies production, distribution, consumption.
Market Econ: production/consumption results from decentralized decisions by many firms/ppl.
Command Econ: central authority making decisions.
Invisible Hand: way which individuals pursuit of self-interests leads to good results for society.
Micro-econ: study of how individuals make decisions and how these decisions interact.
Macro-econ: concerned with overall ups and downs in the economy.
Market Failure: sometimes individual pursuit of one’s own interest can make society worse.
Econ Growth: growing ability of econ to produce goods/services.
PRINCIPLES OF INDIVIDUAL CHOICE
1) Choices are necessary as resources are scarce.
2) True Cost = It’s opportunity cost.
3) “How Much” decisions require trade-offs at the margin.
a) Marginal Decisions: Comparing the costs/benefits of doing a little more of
something vs. little less of something else.
4) Society responds to incentives, exploiting opportunities to make themselves
PRINCIPLES OF THE INTERACTION OF INDIVIDUAL CHOICES
5) There are gains from trade.
a) Gains arise from specialization or division of tasks.
b) Economy produces more when everyone specializes/trades.
6) Since society responds to incentives, markets move towards equilibrium.
a) Equilibrium: situation where no one would be better off doing something else.
7) Resources s