Microeconomics Notes with Important Terms and Graphs

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Introduction
Foundations
Basics
Language of economics

Fundamental problem facing mankind

“Our resources are limited (scarce), but our wants (aspirations to good life , ambitions , needs, dreams) are unlimited.”

SCARCITY = Budget Constraint

Proof Resources Limited
* Time: 24 hours day
* Time is money
* 20 hours in bed (leisure)
* Safe drinkable water = Less than 1% of total water
* $2000 apt/studio, cook own food
* $2000000 a month
* Mansion
* Personal Cook
* Personal Bodyguard
* House Maintenance

Resources are limited
- There is a limit to how much one can achieve, produce, consume

Solution: How to raise living standard?
* Become Chinese (average salary in china < US)
* Live in caves (Still have 24 hours)
* Efficient choices / Management of scarce resources ✓

Economics = the study of how humans (society) manage the scarce resources. All are subject to economic analysis because of scarce resources All are subject to economic analysis because of scarce resources

Issues
* College Education (Subject to economic analysis)
* Church (Subject to economic analysis)
* Business, Entrepreneurship (Subject to economic analysis) * Election (Subject to economic analysis)
* Size of US family is down.
* Romance + Marriage

Given Scarcity

More on one activity
More on one activity

Tradeoff
Less on the rest

Less on the rest

Opportunity Cost
* No free lunch!
* Any choice => “Cost”
* Opportunity cost = best alternative lost, sacrificed, given us as we make decisions. * Opp. Cost -> Full cost of college (BA -> 4 Years) * Explicit Cost ($) Tuition, books, supplies = $20,000 a year. * Hidden Cost (Implicit) -> Lost Earnings -> $25,000 * Stress + Anxiety -> Health Management -> $5000

Benefits of college
* Private Benefits
* Higher Income
* $45000 X 40 = 1,800,000

* Public Benefits
* Service

Also

Under Scarcity, people focus on what they do best.
e.g. academic major
Specialization
Microsoft Corp Computer Software

Specializations
* Our productivity of labor
*  * O  - Family consumes 1 ton of potatoes = 499 tons left. Exchange them for something else (cheese, laptops cells….)

Scarcity

Opportunity Cost

Specialize

Exchange = Trade = Market

Market = demand = Supply
MKT Price 

Eg. US Housing Market

 
 

D Job Loss
D Job Loss

MKT P 
MKT P 

P or labor = Wage
P of loan = Interest
P of apt = Rent

Resources
2 adjectivesScarce

Productive

Resources = productive inputs = factors of production ( Produce goods Earn income

List

Land -> Water soils, forests, animals, minerals, oils, oxygen…)

Labor -> Manpower in production.

Capital -> Physical capital -> Machines buildings, highways, factories. -> Human Capital-> Skill, knowledge, job experience, health status.

Entrepreneur -> Ability to coordinate land labor capital + new ideas into a productive unit called ENTERPRISE.

Business Entrepreneurs -> After “Profits”

Social Entrepreneurs
* Solve Human problems non profits.

Resources earn income

Land -> Rents ($)
Labor -> Wages ($)
Capital -> Interest ($)
Entrepreneurs -> Profits (+) / Profits (–) Loss

Rents + Wages + Interests + Profits + Income Taxes = Total Income = Total Spending = $14 Trillion = GDP

GDP = Gross Domestic Product

Collect all the pieces into a visual aid (circular flow diagram) to show how our market economy operates. Demand to product
Demand to product
Supply products
Supply products
Product Market
Product Market

Rest of world
Rest of world

Spending
Spending
Income
Income

Taxes
Taxes
Government
Government
Households
Households
Business...
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