Def. of Economics
A social science that addresses the allocation of scarce resources among competing uses.
Law of scarcity
human wants are unlimited
but the resources available to satisfy
those wants are limited
- Economics is based on this law.
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.
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.
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
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.
The amount that will be purchased at a specific price during a period of time, holding all other determinants of demand constant.
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.
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.
2 drivers of the law of demand
1) Income effect
2) Substitution 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.
As the price of on good falls