RelativeResourceManager - MICROECONOMICS TOPIC: WHAT IS...

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MICROECONOMICS TOPIC: WHAT IS ECONOMICS? READINGS: , p. 4 types of resources basic economic problem : resources scarce, wants for goods & services produced by resources unlimited. Existence of scarcity forces society to answer 3 basic economic questions : what to produce, how, and for whom. Economics is about how societies answer those basic questions. Economics is how societies deal with scarce resources to satisfy unlimited wants. Economics: the study of how people and societies choose to employ scarce productive resources to produce goods and services and to distribute them among various people and groups in society. Microeconomics: the branch of economics that deals with the behavior of individual economic units—consumers, firms, workers and investors—as well as the markets that these units comprise. TOPIC: SOME BASIC CONCEPTS READING: not in text Some basic principles that you will encounter this semester include the following: (1) People face trade-offs. (2) The cost of something (i.e. the opportunity cost ) is the value of the next best alternative given up, and includes both explicit and implicit costs. Sunk costs are fixed; they don’t change whatever you do. Decision-makers should always consider opportunity costs, but never should consider sunk costs, in their decision-making. (3) Rational people think at the margin, i.e., make decisions by comparing the marginal or added benefit against the marginal cost. (4) People respond to incentives. (5) In economics self-sufficiency is not necessarily a virtue. The reason is we can produce more with the same amount of resources by specializing in what we’re good at and trading. This is true of trade between individuals, between regions or between nations. (6) Markets are a good way to organize economic activity. (7) Markets don’t always work properly, and as a result government intervention is sometimes desirable. TOPIC: MODERN ECONOMIES AND ECONOMIC SYSTEMS READING : mainly, not in text; P&R, ch. 1.2 discusses markets; handouts on Japanese economy, deSoto; the following web site has details on the Russian and Chinese economies: The following web sites provide additional information on laissez-faire capitalism and crony capitalism respectively: modern economies characteristics of all modern economies: extensive use of capital, specialization and division of labor, and the use of money. Advantage of these: ability to produce vast quantity 1
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of products with existing resources. Disadvantage: interdependence pure capitalism envisioned by Adam Smith, father of modern (western) economics, wrote Wealth of Nations in 1776. characteristics of pure capitalism: (1) private property (within limits); (2) freedom of enterprise and
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RelativeResourceManager - MICROECONOMICS TOPIC: WHAT IS...

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