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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 …