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Def. of Economics
A social science that addresses the allocation of scarce resources among competing uses.
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Law of scarcity
human wants are unlimited but the resources available to satisfy those wants are limited
- Economics is based on this law.
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Microeconomics
Def?
Focus?
Study of individual economic units in the economy. The focus is on:
1) The Consumer -- buyer of finished goods and services and the seller of labor, entrepreneurial services and capital.
2) The Firm -- seller of finished goods and services and the buyer of labor, entrepreneurial services and capital.
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Macroeconomics
Study of economic aggregates and overview of the economy including
1) levels of national income, employment, and prices.
2) effects of monetary and fiscal policies.
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The market and underlying forces
The coming together of those who want to buy goods and services and those who want to sell them
- underlying forces = demand and supply
Most fundamental concept in economics
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Demand
Demand is a schedule of the amounts of a good and service that consumers are willing and able to purchase at various prices during a period of time, holding all determinants of demand constant.
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Quantity demanded
The amount that will be purchased at a specific price during a period of time, holding all other determinants of demand constant.
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Graphical depiction of a demand schedule
Relationship b/t the prices of a commodity (on the vertical axis) and the quantity demanded at the various prices (on the horizontal axis), holding other determinants of demand constant.
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The law of demand
If all other factors are held constant (ceteris paribus), the price of a product and the quantity demanded are inversely related, i.e. the higher the price, the lower the quantity demanded.
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2 drivers of the law of demand
1) Income effect
2) Substitution effect
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Income effect
As the price of a good falls, consumers have more buying power (also called real income). As a result they can buy more of a good with the same amount of money.
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Substitution effect
As the price of on good falls
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