As a result of scarcity, a rationing device is needed to determine who gets what of the
available limited resources and goods. Price serves as a rationing device.
Price acts as a transmitter of information relating to the change in the relative scar
Specialization and Trade
A country has a comparative advantage in the production of a good if it can produce the
good at a lower opportunity cost than another country can.
Individuals in countries that specialize and trade have a higher standard of living
The Distribution of Income
In 2007, the lowest fifth of households received 3.4 percent of the total money income,
the second fifth received 8.7 percent, the third fifth received 14.8 percent, the fourth fifth
received 23.4 percent, the top fifth received
Politicians and the Middle: The Median Voter Model
In a two-person race, candidates for the same office will gravitate toward the middle of
the political spectrum to pick up votes. If a candidate does not do so and her opponent
does, the opponent will win
Government and Prisoner's Dilemma Settings
Two or more individuals may find themselves in a prisoner's dilemma setting from which
they would like to remove themselves, but can't. Exhibit 1 shows this explicitly. Both
individuals are in box 4 but would lik
Dealing with Monopoly Power
A monopoly produces less than a perfectly competitive firm produces (assuming the same
revenue and cost conditions), charges a higher price, and causes a deadweight loss. This
is the monopoly power problem, and solving it is us
A View of the Economy
One way to view the economy is as consisting of two sectors: a financial sector and a real
sector. The financial sector consists of financial institutionscommercial banks,
investment banks, hedge funds, brokerage firms, and more. The
Objectives of a Union
Objectives of a union include (1) employment for all its members, (2) maximization of
the total wage bill, and (3) maximization of the income for a limited number of union
members. A labor union faces a wageemployment trade-off; high
Absolute real economic growth refers to an increase in Real GDP from one period to the
Per-capita real economic growth refers to an increase from one period to the next in percapita Real GDP, which is Real GDP divided by population.
The law of demand states that as the price of a good rises, the quantity demanded of it
falls and that as the price of a good falls, the quantity demanded of it rises, ceteris
paribus. The law of demand holds that price and quantity demanded are in
An Economy's Production Possibilities Frontier
An economy's production possibilities frontier (PPF) represents the possible
combinations of two goods that the economy can produce in a certain period of time
under the conditions of a given state of technol
Goods, Bads, and Resources
A good is anything that gives a person utility or satisfaction.
A bad is anything that gives a person disutility or dissatisfaction.
Economists divide resources into four categories: land, labor, capital, and
What is Globalization?
Globalization is a phenomenon by which individuals and businesses in any part of the
world are much more affected by events elsewhere in the world than before; it is the
growing integration of national economies of the world to the