Econ Study Guide
Economics 111 – Study Guide
CHAPER 1 – Economic and Economic Reasoning
Economics: The study of how human beings coordinate their wants and desires given the decision making mechanism, social customs and political realities of society.
The three central coordination problems any economy must solve are:
1. What and How much to produce
2. How to produce it
3. For whom to produce it
Economist find that individuals want more than is available, given how much their willing to work. That means that in our economy there is a problem of scarcity.
Scarcity: The goods available are too few to satisfy individual’s desires.
Scarcity has two elements; our wants and our means of fulfilling those wants.
The degree of scarcity is always changing because the quantity of goods, services and usable resources depends on technology and human action.
Economic theory is divided into two parts:
Microeconomics is the study of individual choice, and how that choice is influenced by economic forces. Study such things as the pricing policies of firms, household’s decisions on what to buy.
Macroeconomics is the study of the economy as a whole. It considers problems of inflation, unemployment, business cycle and growth.
The Economic Decision Rule: Using economic reasoning, decisions are often made by comparing marginal costs and marginal benefits. (Missing a class example)
If the marginal benefit of Doing something exceeds the marginal cost, DO IT!
If the marginal cost of doing something exceeds the marginal benefit, DON’T DO IT!
Marginal cost is the additional cost over and above costs already incurred
Marginal benefit is the additional benefit above and beyond what has already accrued
Economic reasoning is based on the premise that everything has a cost.
Opportunity cost: Is the basis of cost/benefit economic reasoning; it is the benefit that you might have gained from choosing the next best thing.
The benefit forgone of the next-best
CHAPER 1 – Economic and Economic Reasoning
Economics: The study of how human beings coordinate their wants and desires given the decision making mechanism, social customs and political realities of society.
The three central coordination problems any economy must solve are:
1. What and How much to produce
2. How to produce it
3. For whom to produce it
Economist find that individuals want more than is available, given how much their willing to work. That means that in our economy there is a problem of scarcity.
Scarcity: The goods available are too few to satisfy individual’s desires.
Scarcity has two elements; our wants and our means of fulfilling those wants.
The degree of scarcity is always changing because the quantity of goods, services and usable resources depends on technology and human action.
Economic theory is divided into two parts:
Microeconomics is the study of individual choice, and how that choice is influenced by economic forces. Study such things as the pricing policies of firms, household’s decisions on what to buy.
Macroeconomics is the study of the economy as a whole. It considers problems of inflation, unemployment, business cycle and growth.
The Economic Decision Rule: Using economic reasoning, decisions are often made by comparing marginal costs and marginal benefits. (Missing a class example)
If the marginal benefit of Doing something exceeds the marginal cost, DO IT!
If the marginal cost of doing something exceeds the marginal benefit, DON’T DO IT!
Marginal cost is the additional cost over and above costs already incurred
Marginal benefit is the additional benefit above and beyond what has already accrued
Economic reasoning is based on the premise that everything has a cost.
Opportunity cost: Is the basis of cost/benefit economic reasoning; it is the benefit that you might have gained from choosing the next best thing.
The benefit forgone of the next-best