Economics(Today:(Notes(Chapter(1:(1. Microeconomics,,a. Studies,decision,making,undertaken,by,individuals,,households,,and,firms.,b. Focuses,on,small,part,of,economy,i. Ex:,effects,of,changes,in,price,of,gas,relative,to,other,energy,sources,,effects,of,new,taxes,on,a,specific,product,or, indu stry,2. Macroeconomics,,a. Studies,behavior,of,economy,as,a,whole,i. Ex:,changes,in,unemployment,,general,price,level,,national,income,,inflation,rates,,b. Deals,with,aggregates,i. Total,amounts,of,quantities,,3. 3,Basic,Economic,Questions,a. What,and,how,much,will,be,produced?,b. How,will,items,be,produced?,i. More,labor,,less,capitol?,Vise,versa?,ii. How,to,max,or,min,total,expenses,c. For,whom,will,items,be,produced?,i. Use,scarce,resources,so,people,value,access,to,that,item,4. Centralized,Command,and,Control,a. A.k.a.,Central,planning,b. Kind,or,queen,,dictator,,central,government,c. Decides,what,items,to,produce,and,how,many,d. Decides,how,scarce,resources,will,be,organized,and,who, g ets,them,i. Ex:,Government,that,particular,types,of,cars,must,be,produced,in,certain,numbers,5. The,Price,System,a. Alternative,to,command,and,control,b. A.k.a.,market,system,c. Answers,3,basic,questions,using,decentralized,decision,making,d. Individuals,and,families,own,scarce,resources,e. Signaling,,i. Provides,info,to,buyers,and,sellers,about,how,much,should,be,produced,,who,will,buy,them,,the,value,of,the,item,6. Mixed,Economic,System,a. Incorporate,both,centralized,command,and,control,and,decentralized,price,system,7. Rationality,Assumption,a. We,assume,individuals,don’t,make,decisions,that,will,leave,them,worse,off,i. Explains,how,individuals,respond,to,incentives,8. The,Ceteris,Paribus,Assumption,a. All,other,things,being,equal,b. Holding,other,factors,like,taste,,religion,,customs,constant,9. Behavioral,Economics,a. The,study,of,a,consumers,behavior;,one,that,would,interfere,with,rational,decision,making,i. Typically,economists,study,how,people,act,,not,how,they,think,10. “Unrealistic”,Rationality,Assumptions,presented,by,traditional,models,a. Unbounded,selfishness,i. People,are,only,interested,in,their,own,satisfaction,b. Unbounded,willpower,i. Choices,are,constant,with,long`term,goal,c. Unbounded,rationality,i. They,are,able,to,consider,every,choice,11. Bounded,Rationality,a. Replaces,Rationality,Assumptions,b. People,can’t,examine,and,think,through,every,choice,they,confront,c. Therefore,,people,can’t,always,pursue,their,best,long`term,personal,interests,12. Positive,economics,a. “If,A,,then,B”,i. If,the,price,of,gas,goes,up,,then,people,buy, less,gas,b. A,statement,of,“What,is”,as,opposed,to,someone’s,value,judgment,13. Normative,economics,a. “If,the,gas,price,goes,up,,people,will,buy,less,,so(we(should….”,i. Values,are,entering,into,the,discussion,14. Direct,relationship,a. Relationship,between,2,variables,is,positive,,i. As,one,increases,,so,does,the,other,15. Inverse,Relationship,a. Relationship,between,2,variables,is,negative,i. As,one,increases,,the,other,decreases,,,,,,,,,,,,,,,,,,Chapter(2:,1. Scarcity,a. Not,a,shortage,b. Not,poverty,c. The,most,basic,concept,in,all,of,economics,i. We,don’t,have,enough,of,everything,,including,time,,to,satisfy,every,desire,ii. Human,wants,exceed,what,we,can,produce,2. Factors,of,Production,(Resources),a. Land,(natural,resources),i. Nonhuman,gifts,of,nature,ii. Timber,,water,,fish,,minerals,,etc.,b. Labor,(human,resources),i. Productive,contributions,made,by,individuals,ii. Web,page,designers,,iPad,app,creators,,professional,football,players,c. Physical,capital,i. Factories,and,equipment,used,in,production,ii. Improvements,to,natural,resources,1. Ditches,d. Human,capitol,i. The,education,and,training,of,workers,ii. How,much,the,nation,produces,depends,on,how,many,hours,people,work,and,how,productive,they,are,1. In,turn,,depends,on,education,and,training,iii. Whenever,a,worker’s,skill,increases,,human,capital,in,improved,e. Entrepreneurship,(subdivision,of,labor),i. Component,of,human,resources,that,performs,functions,of,organizing,,managing,,and,assembling,the,other,factors,of,production,to,create,and,operate,business,ventures,3. Goods,a. Things,that,generate,human,satisfaction,and,happiness,i. Include,air,,sunsets,,food,,cars,4. Economic,goods,a. Subset,of,all,goods,b. Scarce,goods,c. Cars,,blu`ray,players,,computers,socks,,corn,5. Bads,a. Desired,quantity,is,less,of,what,nature,p rovides,b. Ex:,weeds,6. Natural,fact,of,scarcity,a. We,must,make,choices,b. Every,choice,made,means,some,opportunity,must,be,sacrificed,7. Opportunity,cost,a. The,value,of,the,next,best,alternative,,b. The,value,of,what,you’re,giving,up,to,do,something,else,c. When,you,choose,to,do,something,,you,lose,something,else,i. Your,lose,being,able,to,engage,in,your,next`highest`valued,alternative,1. The,cost,of,your,chosen,alternative,,d. Cost=,a,forgone,opportunity,8. Trade`off,a. Anytime,you,engage,in,any,activity,using,any,resource,,even,time,b. Ex:,the,opportunity,cost,is,the,value,of,the,next,best,alternative,,when,you,think,of,any,other,alternative,,those,are,the,trade`offs,9. Production,Possibilities,Curve,(PPC),a. Curve,representing,all,possible,combinations,of,maximum,outputs,that,could,be,produced,assuming,a,fixed,amount,of,productive,resources,of,a,given,quantity,i. Assuming,everything,is,constant,10. Productive,Efficiency,a. When,the,maximum,output,with,the,given,resources,is,produced,11. Inefficient,Point,a. Point,below,PPC,,b. Not,generating,maximum,possible,output,12. Law,of,Increasing,Addition,Cost,a. When,society,takes,more,resources,and,applies,them,to,the,production,of,any,specific,good,,the,opportunity,cost,increases,for,each,additional,unit,produced,13. Comparative,Advantage,a. The,ability,to,produce,a,good,or,service,at,a,lower,opportunity,cost,compared,to,other,producers,b. Relative,concept,c. Ex:,if,you,are,capable,of,changing,your,own,oil,,even,fast,than,mechanic,,but,you,your,opportunity,cost,exceeds,your,mechanics,,your,mechanic,has,a,comparative,advantage,in,changing,your,oil,and,faces,a,lower,opportunity,cost,for,the,activit y,14. Absolute,advantage,a. Doing,the,same,task,as,someone,else,more,efficiently,and,using,less,resources,b. Irrelevant,in,predicting,how,you,will,allocate,your,time,i. Only,comparative,advantage,matters,15. Example,of,Comparative,and,Absolute,advantage,a.