Economics is the study of how individuals and societies choose
to use the scarce resources that nature and previous generations have provided.
Why Study Economics?
•
An important reason for studying economics is to learn a way of
thinking.
•
Three fundamental concepts:
•
Opportunity cost
•
Marginalism,
and
•
Efficient markets
•
Opportunity cost is
the best alternative that we forgo, or give up, when we make a choice or a
decision.
•
Nearly all decisions involve trade-offs.
•
In weighing the costs and benefits of a decision, it is important to
weigh only the costs and benefits that arise from the decision.
•
For example, when a firm decides whether to produce additional output,
it considers only the additional (or marginal cost), not the sunk
cost.
•
Sunk costs
are costs that cannot be avoided, regardless of what is done in the future,
because they have already been incurred.
•
•
An efficient market is one in which profit opportunities
are eliminated almost instantaneously.
•
There is no free lunch! Profit
opportunities are rare because, at any one time, there are many people
searching for them.
•
The study of economics is an essential part of the study of society.
•
Economic decisions often have enormous consequences.
•
During the Industrial Revolution, new manufacturing
technologies and improved transportation gave rise to the modern factory
system.
•
An understanding of economics is essential to an understanding of
global affairs.
•
Voting decisions also require a basic understanding of economics
•
Microeconomics is the branch of economics that examines the behavior of individual
decision-making units—that is, business firms and households.
•
Macroeconomics is the branch of economics that examines the behavior of economic
aggregates— income, output, employment, and so on—on a national
scale.
•
Positive economics studies economic behavior without making
judgments. It describes what exists and
how it works.
•
Normative economics, also
called policy economics, analyzes outcomes of economic behavior, evaluates them
as good or bad, and may prescribe courses of action.
•
Normative economics, also
called policy economics, analyzes outcomes of economic behavior, evaluates them
as good or bad, and may prescribe courses of action.
•
Normative economics, also
called policy economics, analyzes outcomes of economic behavior, evaluates them
as good or bad, and may prescribe courses of action.
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