Microeconomics_Chapter_1 - Microeconomics Chapter 1 1 The...

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Microeconomics Chapter 1 1. The Invisible Hand Economy: system for coordinating societies productive activities Economics: social science that studies the production, distribution, and consumption of goods and services Market economy: an economy in which decisions about production and consumption are made by the individual consumers and producers - United Stat es econo my - No central a uthority telling people what to produce or where to - Alternative is a co m m a nd econo my ( there is a central authority m aking decisions about production a nd consu m ption , this is what the The ter m invisible h and com es from a p ass ag e in Adam Smith’s book A wealth of Nations, it refers to the way a m arket econo my m a n ag es to h arness the power of self-interest for the good of society Microecono mics: the study of how individuals m ake decisions and how thes e decisions interact - One of the key ele m ents in microecono mics according to Adam Smith is : individuals pursuing their own interest often do promot e the 2. My Benefit Your Cost “ Som etim es the individual pursuit of one’s own interest, inste ad of promoting the interest of society as a whole, can actu ally m ake society worse off” When this h app ens it is known as m arket failure 3. Good Times, Bad Times The econo my doesn’t always run s moothly it exp eriences fluctuations, a series of ups and downs. Recession: downturn of the econo my - During a recession millions of workers will be laid off - By middle ag e the typical American has experienced three of four
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