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Economics
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the study of how society manages its scarce (limited) resources.
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Scarcity
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the limited nature of society's resources.
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Economic systems can be viewed as:
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1. Command/Centrally Planned Economy
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the government makes all the pricing and allocation decisions.
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2. Market Economy/Laissez-faire Economy (free market)
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prices and allocation decisions are determined by the market forces.
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3. Mixed Economy
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an economy that uses both market & non-market signals in allocating goods and resources.
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1. Microeconomics
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the study of how households and firms make decisions and how they interact in markets.
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2. Macroeconomics
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the study of economy-wide phenomena (ex. Inflation, unemployment, and economic growth).
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1. Positive Statement (positive economics)
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claims that attempt to describe the world as it is; factual.
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2. Normative Statement (normative economics)
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claims that attempt to prescribe how the world should be; what should be.
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When economists make normative statements, they act more as policy advisors than as scientists.
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Free Good
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a good that is not scarce, and is available without a limit.
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Economic Surplus
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the difference between the benefit of taking an action minus its cost.
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"Having more of one thing means having less of another thing."
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- scarcity is not only limited to money.
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"action should only be taken if the benefits are greater than the costs."
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a method for assessing the desirability of a project taking into account the costs and benefits involved.
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- a decision is only taken if the benefits exceeds the cost.
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the cost expressed in terms of the best alternative foregone.
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Implicit Costs
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what you give up.
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Explicit Costs
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what you opt for.
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Opportunity costs are unique to economists, financial accountants only recognise explicit costs.
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Cheatography n. The art of mapping complex subjects into clear, instantly navigable reference guides.
