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Chap 1

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24 views6 pages

Chap 1

Uploaded by

Nada Baccouchi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What’s economics:

Economics is the science which studies human behavior as a relationship between ends (the needs)
and scarce (limited sources) means which have alternative uses

What are the resources:

Scarcity is the limited nature of society resources.

a resource which means anything that can be used to produce something

we have three basic kinds of resources to produce goods and services

Labor (L)  time of workers and human resources (educational achievements and skills or workers
(savoir et savoir faire savoir etre et la sante)

Capital  assets (machine buildings…. (Capital fix))

Land or natural resources

 Economics is the study of how society manages and uses the scarcity which is the limited
nature of society’s resources. (How society decides how to divide its resources between
national defense, consumer goods protecting the environment, and other needs)

The principles of how people make decisions


Principle #1: People Face Tradeoffs
efficiency vs equality
efficiency is when society gets the most from its scarce resources
equality when prosperity is distributed uniformly
among society’s members (This ensures that everyone has an equal chance to achieve success
and thrive in society, regardless of their background or circumstances)

an example of tradeoff:
to achieve equality, we have to increase taxes increase unemployment insurance minimum
incomes and social benefits but this can potentially reduce the incentive to work and
produce, as individuals may feel less motivated to work hard and earn higher incomes also
wealthy’s people income will be heavily taxed which can lead to reduce the investment and
the economic growth.

Principle #2: The Cost of Something Is


What You Give Up to Get It

Comparing costs and benefits of alternative choices to make a decision


The opportunity cost of any item is whatever must be given up to obtain it
this means that the cost of something is not just the monetary price, but also the opportunity
cost - the value of the next best alternative that must be foregone in order to pursue a certain
course of action.

Principle #3: Rational People Think at the Margin


In microeconomics, it is assumed that economic actors are rational: homo economicus.
Rational behavior: « any behavior is rational if it is based on a comparison with the resources
that the actor has and the goals which are looking for. »
What is a rational behavior?
When we say that someone is behaving rationally, we probably mean that he or she is acting
in a thoughtful, clear-headed way.
Marginal decisions involve doing a comparison between the costs and benefits of producing
or consuming one additional unit of a good or service. This study is called marginal analysis

Marginal cost: the additional cost of one unit


Marginal benefit: the additional benefit of one unit

Principle #4: People Respond to Incentives


Rational people respond to incentives.

A. 6500-5700=800 800>600 get the transmission repaired


B. 6000-5500= 500 500<600 don’t get the transmission repaired

The principles of how people interact


our decisions affect not only ourselves but other people as well.

Principle #5: Trade Can Make Everyone Better Off


Trade allows each person to specialize in the activities she does best, whether it is farming,
sewing, or home building.
By trading with others, people can buy a greater variety of goods and services at lower cost.
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity
Market: a group of buyers and sellers (need not be in a single location)
planned economic systems: the central authority controls economic decisions and the means
of production
In a market economy, individuals and businesses make decisions about P&C based on their
own self-interest, rather than a central planner making those decisions.
the “invisible hand” of the marketplace guides this self-interest into promoting general
economic well-being. it leads markets to allocate resources to maximize the size of the
economic pie
This system allows for competition and innovation, as businesses strive to make products
that people want at prices they can afford.
Principle #7: Governments Can Sometimes Improve Market Outcomes
Market failure: When the market fails to allocate society’s resources efficiently.
Causes:
Negative externality: pollution and health problems created by the production
Positive externality: Research into new technologies provides knowledge
Market power: monopoly which means a single firm controls and influences market prices

The invisible hand does not ensure equality and economic well being especially with the
presences of market power and externalities that’s we need a well-designed public
policy to enhance economic efficiency such as enforcing property rights or with taxes and
welfare policies

The principles of how the economy as a whole works

Principle #8: A country’s standard of living depends on its ability to


produce goods & services.
 Gross Domestic Product (GDP): is the market value of all final goods and
services produced within a country in a given period of time:
 Gross domestic product per Person: average income
 Gross domestic product per Person = GDP/Total population

the growth rate of a nation’s productivity (it depends on eq skills and tech) determines the
growth rate of its average income”.
Aside from productivity we have labor unions minimum wage laws comp from abroad…

Principle #9: Prices rise when the government


prints too much money.
Inflation: Increases in the general level of prices.
 In the long run: it can be caused by the excessive growth in the quantity of money
 In the short run: it can be caused by an imbalance between supply and demand
(demand > supply)

Principle #10: Society faces a short-run tradeoff between inflation and


unemployment

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