Economics is the study of the economy
Economics is classically referred to as the study of the use of scare resources to satisfy unlimited human wants
An country is equivalent to an economy
An economy has limited resources available to them
Resources
- Land — natural endowments
- Labour — mental and physical human labour
- Capital — tools, machinery, equipment
Factors of production
- Labour — mental and physical human labour
- Capital — tools, machinery, equipment
Factors of production combined with RAW MATERIALS to create goods and services
The value of something is that of the opportunity cost, the most valuable alternative that could otherwise been achieved
fighter jets : everything else = total output ratio ???
Economy purpose = make order from chaos
- How to enjoy our lives
- What to produce
- How much to earn
- How much to work Creates purpose through these decisions
Markets create structure
Markets reflect the people in it (supposedly) — if nothing stops people from cheating, they will (self-interest — market failure)
A balance between the people who want the thing and the people who are willing to pay for the scare resource — imbalanced where there is resource inequality
Price mechanism = translation of scarcity into an agreed upon value (dollar value)
Scarcity = value → when price goes up, it communicates scarcity
Decisions are uncoordinated by the masses — everyone making simultaneous decisions creating structure/order
Institutions create the written and unwritten rules of the name
Norms = unwritten rules
Written rules — Ex. Ownership rights
Institutions are supposed to level the playing field, but in practice the rules are written by those in power — creates bias and skew — nothing compensates for ill-defined institutions
Parameters are fixed values
Variables are non-fixed (varied) values
Steepness is the absolute value of slope