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What Economics Is. Economics is study of how human beings …. coordinate their wants and desires, given decision-making mechanisms, social customs, and political realities of society. Coordination in Economics. Any economic system must solve three coordination problems:

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What economics is
What Economics Is

Economics is study of how human beings ….

coordinate their wants and desires, given decision-making mechanisms, social customs, and political realities of society.


Coordination in economics
Coordination in Economics

  • Any economic system must solve three coordination problems:

    • What, and how much, to produce.

    • How to produce it.

    • For whom to produce it.


The economic problem
“The” Economic Problem

  • Scarcity …

    • goods available are too few to satisfy individuals’ desires

  • It exists because …

    • individuals want more than can be produced.

  • Degree of scarcity is constantly changing.

    • Quantity of goods, services, and usable resources depends on technology and human action.


Understanding economics
Understanding Economics

  • To understand the economy, you need to learn:

    • Economic reasoning

    • Economic terminology

    • Economic insights about issues and theories that lead to those insights.

    • Something about economic “institutions.”

    • Information about economic policy options.


Economic reasoning
Economic Reasoning

  • Economic reasoning is making decisions by comparing marginal costs and marginal benefits.

  • MC …

    • additional cost over and above costs already incurred.

  • MB…

    • additional benefit above and beyond what has already accrued.


Opportunity cost
Opportunity Cost

  • Opportunity cost is …

    • benefit forgone of next-best alternative to activity you’ve chosen

    • is the basis of cost/benefit economic reasoning

    • everything has a cost

    • TANSTAAFL


Examples of opportunity costs
Examples of Opportunity Costs

  • Individual decisions

  • Government decisions


Economic vs market forces
“Economic” vs.“Market” Forces

  • What’s the difference between economic forces and market forces?

    • Economic forces are necessary reactions to any kind of scarcity.

    • Market forces are a subset of the possible set of economic forces: under market forces, society solves its scarcity problems through “markets.”


Economics market forces
Economics & Market Forces

  • Market forces ration by what means?

    • Prices…

  • “Invisible hand” Theory…

    • When there’s goods/services surplus…

      • quantity supplied > quantity demanded (QS, or QS) > (QD, or QD)

    • Price has a tendency to …

      • fall ()

    • When there’s shortage (QD > QS), price (p)…

      • Has a tendency to rise ()


Microeconomics and macroeconomics
Microeconomics and Macroeconomics

  • Microeconomics …

  • Macroeconomics …


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