Microeconomics Ch. 1, 2, and 3

Scarcity

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist.

​Trade-offs force society to make​ choices, particularly when answering the following three fundamental​ questions:

One, what goods and services will be​ produced? Two, how will the goods and services be​ produced? Three, who will receive the goods and services​ produced?

Economic Model

a simplified version of reality used to analyze real-world economic situations

A market is a group of _______________ of a good or service and the institution or arrangement by which they come together to trade.

buyers and sellers

Equity

the fair distribution of economic benefits.

Opportunity cost

the highest valued alternative that must be give up to engage in an activity.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives,

the policies are consistent with economic incentives.

Societies

*It organize their economies in two main ways to answer the three questions of​ what, how, and who. * A society can have a centrally planned economy in which the government decides how economic resources will be allocated. *A society can have a market economy in which the decisions of households and firms interacting in markets allocate economic resources.

Consumers, firms, and government

It decide(s) what goods and services will be produced.

Productive efficiency

It occurs when a good or service is produced at the lowest possible cost.

Allocative efficiency

It occurs when production is in accordance with consumer preferences.

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality.

mixed economy

an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Economics

is the study of the choices people make to attain their​ goals, given their scarce resources.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.