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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. Any economic system must solve three coordination problems:

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What Economics Is

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  1. 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.

  2. 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.

  3. “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.

  4. 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.

  5. 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.

  6. 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

  7. Examples of Opportunity Costs • Individual decisions • Government decisions

  8. “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.”

  9. 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 ()

  10. Microeconomics and Macroeconomics • Microeconomics … • Macroeconomics …

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