Intro to Microeconomics Study Guide
Microeconomics
Economics is the study of allocation of scarce resources
1) Chapter One: The Principles of Microeconomics a. Four resources: Land, Labor, Capital (machinery), Entrepreneurship (human capital) b. Principle #1: People face trade-offs, government also faces them, the main one the gov. faces is efficiency vs. equity i. Efficiency is when everyone who makes the most, keeps the most money ii. Equity would be if everyone was taxed the same c. Principle #2: The cost of something is what you give up iii. Opportunity cost = the measurement of trade-off you give up something you can have later, to get something now d. Principle #3: Rational people think at the margin iv. They do what’s best for them and maximize benefits v. Think at the margin = thinking about the NEXT one vi. Margin=small incremental changes e. Principle #4: People respond to incentives vii. Prices are major incentives viii. Taxes/tax credit f. Principle #5: Trade can make everyone better off ix. Everybody can specialize x. More variety of goods xi. Doesn’t always make everyone better off ex: Jamaica, NAFTA xii. One partner can be strong and over power others g. Principle #6: Markets are a good way to organize economic activity xiii. People are guided by self-interest xiv. Markets are where consumers and suppliers come together and trade-off occurs h. Principle #7: The government can improve market outcomes xv. Main act of government – enforce property rights xvi. Government can step in if there’s market failureexternalities occur (taxes can be enforced for cigarettes), people who aren’t in the market are affected xvii. Government can step in when there’s market power xviii. Monopoly/oligopoly-government might step in 2) Chapter 2: What does it
Economics is the study of allocation of scarce resources
1) Chapter One: The Principles of Microeconomics a. Four resources: Land, Labor, Capital (machinery), Entrepreneurship (human capital) b. Principle #1: People face trade-offs, government also faces them, the main one the gov. faces is efficiency vs. equity i. Efficiency is when everyone who makes the most, keeps the most money ii. Equity would be if everyone was taxed the same c. Principle #2: The cost of something is what you give up iii. Opportunity cost = the measurement of trade-off you give up something you can have later, to get something now d. Principle #3: Rational people think at the margin iv. They do what’s best for them and maximize benefits v. Think at the margin = thinking about the NEXT one vi. Margin=small incremental changes e. Principle #4: People respond to incentives vii. Prices are major incentives viii. Taxes/tax credit f. Principle #5: Trade can make everyone better off ix. Everybody can specialize x. More variety of goods xi. Doesn’t always make everyone better off ex: Jamaica, NAFTA xii. One partner can be strong and over power others g. Principle #6: Markets are a good way to organize economic activity xiii. People are guided by self-interest xiv. Markets are where consumers and suppliers come together and trade-off occurs h. Principle #7: The government can improve market outcomes xv. Main act of government – enforce property rights xvi. Government can step in if there’s market failureexternalities occur (taxes can be enforced for cigarettes), people who aren’t in the market are affected xvii. Government can step in when there’s market power xviii. Monopoly/oligopoly-government might step in 2) Chapter 2: What does it