ECON1220-CH1
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Economics
The study of the choices people make to attain their goals, given their scarce resources.
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Relationship between efficiency and equity
There is often a trade-off between efficiency and equity.
Productive Efficiency
A situation in which a good or service is produced at the lowest possible cost.
Voluntary exchange
A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
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.
Three kinds of market
Financial market, good market and labor market.
Factors of production or economic resources.
Firms use factors of production to produce goods and services. The main factors of production are labor, capital, natural resources—including land—and entrepreneurial ability. Households earn income by supplying to firms the factors of production.
Diagram: Fluctuation & trend
Fluctuation: business cycle Trend: economic growth
Capital
In economics, though, capital refers to physical capital, which includes manufactured goods that are used to produce other goods and services. The total amount of physical capital available in a country is referred to as the country's capital stock.
Three important economic ideas
People are rational, people respond to incentives, and optimal decisions are made at the margin.