The document discusses the key principles of economics, including:
1. Economics studies how societies manage scarce resources.
2. People face tradeoffs and consider costs and benefits at the margin when making decisions.
3. Markets are generally efficient but governments sometimes need to intervene to improve outcomes or address externalities and market power.
4. International differences in living standards are largely due to differences in productivity, with higher productivity leading to higher incomes.
The document discusses the key principles of economics, including:
1. Economics studies how societies manage scarce resources.
2. People face tradeoffs and consider costs and benefits at the margin when making decisions.
3. Markets are generally efficient but governments sometimes need to intervene to improve outcomes or address externalities and market power.
4. International differences in living standards are largely due to differences in productivity, with higher productivity leading to higher incomes.
The document discusses the key principles of economics, including:
1. Economics studies how societies manage scarce resources.
2. People face tradeoffs and consider costs and benefits at the margin when making decisions.
3. Markets are generally efficient but governments sometimes need to intervene to improve outcomes or address externalities and market power.
4. International differences in living standards are largely due to differences in productivity, with higher productivity leading to higher incomes.
The document discusses the key principles of economics, including:
1. Economics studies how societies manage scarce resources.
2. People face tradeoffs and consider costs and benefits at the margin when making decisions.
3. Markets are generally efficient but governments sometimes need to intervene to improve outcomes or address externalities and market power.
4. International differences in living standards are largely due to differences in productivity, with higher productivity leading to higher incomes.
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Economy. . .
. . . The word economy comes from a Greek word for one who manages a household.
Scarcity . . . . . . means that society has limited resources and therefore cannot produce all the goods and services people wish to have.
Economics is the study of how society manages its scarce resources.
Ten Principles of Economics
About How People Make Decisions:
1. People face tradeoffs.
2. The cost of something is what you give up to get it.
3. Rational people think at the margin.
4. People respond to incentives.
About How People Interact:
5. Trade can make everyone better off.
6. Markets are usually a good way to organize economic activity.
7. Governments can sometimes improve economic outcomes.
About How the Economy as a Whole Works:
8. The standard of living depends on a countrys production.
9. Prices rise when the government prints too much money.
10. Society faces a short-run tradeoff between inflation and
unemployment.
Penjelasan per point: next page
1. People face tradeoffs.
To get one thing, we usually have to give up another thing.
o Guns vs butter o Food vs clothing o Leisure time vs work o Efficiency vs equity:
Efficiency means society gets the most that it can from its scarce resources. Equity means the benefits of those resources are distributed fairly among the members of society.
2. The cost of something is what you give up to get it.
Decisions require comparing costs and benefits of alternatives. Whether to go to college or to work? Whether to study or go out on a date? Whether to go to class or sleep in?
The opportunity cost of an item is what you give up to
obtain that item.
3. Rational people think at the margin.
Marginal changes are small, incremental adjustments to an existing plan of action. People make decisions by comparing costs and benefits at the margin.
4. People respond to incentives.
Marginal changes in costs or benefits motivate people to respond. The decision to choose one alternative over another occurs when that alternatives marginal benefits exceed its marginal costs!
LA Laker basketball star Kobe Bryant chose to skip college and go
straight to the NBA from high school when offered a $10 million contract.
5. Trade can make everyone better off.
People gain from their ability to trade with one another. Competition results in gains from trading. Trade allows people to specialize in what they do best. 6. Markets are usually a good way to organize economic activity. In a market economy,households decide what to buy and who to work for. Firms decide who to hire and what to produce.
7. Governments can sometimes improve market outcomes.
When the market fails (breaks down) government can intervene to promote efficiency and equity. Market failure occurs when the market fails to allocate resources efficiently. Market failure may be caused by an externality, which is the impact of one person or firms actions on the well-being of a bystander. Market failure may also be caused by market power, which is the ability of a single person or firm to unduly influence market prices.
8. The standard of living depends on a countrys production.
Standard of living may be measured in different ways: o By comparing personal incomes. o By comparing the total market value of a nations production.
Almost all variations in living standards are explained by
differences in countriesproductivities Productivity is the amount of goods and services produced from each hour of a workers time. Higher productivity ->Higher standard of living.
9. Prices rise when the government prints too much money.
o Inflation is an increase in the overall level of prices in the economy. o One cause of inflation is the growth in the quantity of money. o When the government creates large quantities of money, the value of the money falls.
10. Society faces a short-run tradeoff between inflation and
unemployment.
Inflation Unemployment Its a short-run tradeoff!
Elasticity . . . is a measure of how much buyers and sellers respond to changes in market conditions. allows us to analyze supply and demand with greater precision.
Price Elasticity of Demand
o Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price. o It is a measure of how much the quantity demanded of a good responds to a change in the price of that good.
Demand tends to be more elastic :
if the good is a luxury. the longer the time period. the larger the number of close substitutes. the more narrowly defined the market.
Elasticity and Total Revenue:
With an inelastic demand curve, an increase in price leads to a decrease in quantity that is proportionately smaller. Thus, total revenue increases. With an elastic demand curve, an increase in the price leads to a decrease in quantity demanded that is proportionately larger. Thus, total revenue decreases. Computing Income Elasticity Income Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Income
Income Elasticity -Types of Goods - Normal Goods Inferior Goods Higher income raises the quantity demanded for normal goods but lowers the quantity demanded for inferior goods.
Price Elasticity of Supply
Price elasticity of supply is the percentage change in quantity supplied resulting from a percent change in price. It is a measure of how much the quantity supplied of a good responds to a change in the price of that good.
Ranges of Elasticity: Perfectly Elastic ES= Relatively Elastic ES> 1 Unit Elastic ES= 1 Relatively Inelastic ES< 1 Perfectly Inelastic ES= 0 The equilibrium of demand and supply maximizes the sum of consumer and producer surplus.
Consumer surplus measures the benefit buyers get from
participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price.
Producer surplus measures the benefit sellers get from
participating in a market.
Producer surplus can be computed by finding the area below the
