ECON
Microeconomics notes

Microeconomics notes - Microeconomics Textbook(Mankiw's...

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Microeconomics Textbook (Mankiw’s Principles of Microeconomics ) Notes Chapter 1: 10 Principles of Economics - scarcity : the limited nature of society’s resources - economics : the study of how society manages its scarce resources HOW PEOPLE MAKE DECISIONS 1) people face tradeoffs : “guns & butter,” clean environment & high level of income, efficiency (the property of society getting the most it can from its scarce resources) & equity (the property of distributing economic prosperity fairly among the members of society) 2) the cost of something is what you give up to get it : includes time, money, opportunity cost, etc. o opportunity cost : whatever must be given up to obtain some item 3) rational people think at the margin : ppl make decisions by comparing the marginal benefits & costs o marginal changes : small incremental adjustments to a plan of action 4) people respond to incentives HOW PEOPLE INTERACT 5) trade can make everyone better off 6) markets are usually a good way to organize economic activity o market economy : an economy that allocates resources thru the decentralized decisions of many firms & households as they interact in markets for g+s o Adam Smith’s An Inquiry into the Nature & Causes of the Wealth of Nations : households & firms interacting in markets are guided by an “invisible hand” that leads them to desirable outcomes 7) governments can sometimes improve market outcomes o market failure : a situation in wh/ a market left fails to allocate resources efficiently o causes of market failure are externality (the impact of 1 person’s action on the well-being of a bystander) & market power (the ability of a single economic actor or small group of actors to have a infl on market prices) o the invisible hand may fail to ensure that prosperity is distributed equitably → public policies (income tax, welfare system) aim to achieve a more equity HOW THE ECONOMY AS A WHOLE WORKS 8) a country’s standard of living depends on its ability to produce goods & services : difs in living standards → difs in countries’ productivity (the quantity of g+s produced from each hr of a worker’s time) 9) prices rise when the government prints too much money o inflation : an increase in the overall level of prices in the economy 10) society faces a short-run tradeoff between inflation & unemployment o Phillips curve : a curve that shows the sort-run tradeoff between inflation & unemployment o it help understand the business cycle (fluctuations in economic activity such as employment & production) Chapter 2: Thinking Like An Economist - as scientists, economists use the scientific method as well as observation, assumptions, models, & theory - TYPES OF ECONOMIC MODELS o circular-flow diagram : a visual model of the economy that shows how $ flow thru markets among households & firms . Firms produce g+s using inputs, such as labor, land, & capital ( factors of production ).
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