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.