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Hannah Holmes

Ch 1Introduction to Micro EconomicsEconomics study of how society allocates its scarce resources to satisfyoSCARCITY means society has limited resources cant produce all good and service people wantMicro economics individual parts of economy eg households make decisions how they interact in specific marketsMacro economics economy as a whole economywide phenomena inflation unemployment economic growthMarket economy allocates resources through decentralized decisions of firms and householdsoHouseholds decide what to buy and who to work foroFirms decide who to hire and how much to produceCommand or centrally planned economy production and distribution decisions made by central authorityBasic principles of EconomicsoHousehold and economy face many decisionsWho will workWhat goods and how much to produceWhat resources should be used in productionWhat price should goods be soldResourceanything that can be used to produce something elseoLand labour physical capitalbuildings machinery etcOpportunity cost of something is everything you have to give up to get itoThe cost of the best forgone alternativeEquilibrium no incentive no purpose to do something in a state of Specialize in tasks we do best trade with others we need that they can provide GAINS FROM TRADEEfficiency means society makes the best use of its resources economic decisionsMarket failure when market fails to allocate resources efficientlyEquity fair distribution of resources political decisionsExternality impact of person or firm on bystanderMarket power ability to influence market pricesPositive statements statements that attempt to describe the world as it is descriptive analysis Normative statements statements about how the world should beprescriptive analysisThe CircularFlow DiagramFirmso Produce and sell goods and serviceso Hire and use factors of productionHouseholdso Buy and consume goods and serviceso Own and sell factors of productionMarkets for Goods and Services Firms sellHouseholds buyMarkets for Factors of ProductionHouseholds sellFirms buyFactors of ProductionInputs used to produce goods and servicesLand labour and capital
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