What is Microeconomics? Chapter 1

What are the 3 methods of resource allocation?

1. Command: Central authority (Like North Korea) 2. Tradition: used mostly in tribal societies. Orderly and stable. 3. The market: Do what you want with whatever you have

What are resources? (4 types)

1. Labor, 2. Land, 3. Capital, Entrepreneurship

Scarcity

A situation in which the amount of something available is insufficient to satisfy the desire for it.

Capital

Long lasting tool that labor uses to produce goods and services

Opportunity cost =

Economics - Cost

Opportunity cost includes?

Explicit & Implicit Costs

Implicit Costs

The value of something sacrificed when no direct payment is made. Same as foregone earnings

What is opportunity cost?

What you have to give up when you make a choice.

model

abstract representation of reality

normative economics

providing advice and solutions based on economics

Foregone earnings:

Money you would be making with your time, if you weren't wasting it doing this other task.

What are the 2 types of capital?

Physical Capital and Human capital

Capital Stock

The total amount of capital in a nation that is productively useful at a particular time.

Resource Allocation

What is produced? How is it going to be produced? Who gets the goods & services we produce? How do we allocate these resources?

Economics

study of choice under conditions of scarcity.

Microeconomics

take a smaller more individualistic approach to economics

Macroeconomics

take an overall view of the economy

Positive economics

the study of how economics works