Chapter 1

Chapter 1

Economics – study on how to coordinate wants and desires

3 Control Problem

1. What and how much to produce
2. How to produce? Production
3. For when to produce? Distribution

Scarcity- limited resources to satisfy human desires

   – need to be rationed

Marker Rationing vs Non-market Rationing

-most prevalent way   /=    non-via price

-through prices   /=   social, cultural, political factors

-if surplus prices /=   much longer history of doing

-if shortageprices       /=

Microeconomics   vs Macroeconomics

-individual and firm decision /= aggregate or big economy

-price and consumption /= inflation, unemployment, economic growth

Marginal Cost (MC) vs Marginal Benefit

-Additional cost of doing things /= additional benefit of doing things

                                                       /= additional revenue

-additional DM, DL, DOH

Sunk Cost- cost incurred that cannot be recovered, irrelevant to decision making

Marginal Analysis Rule

If MB> MC = do the activity

If MB<MC = do not do the activity

Opportunity Cost- foregone benefit when choosing the best alternative

Economic Models- theories to simplify the complex situation to make pr

– unrealistic in nature and design

Labor Market- minimum ways of labor price demand for labor

Invisible hand but was false