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Econ 102 Notes

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45 views3 pages

Econ 102 Notes

Uploaded by

zahos
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Intro to Economics: Key Concepts

1. Definition of Economics

 Economics: The study of how individuals, businesses, governments, and societies


allocate scarce resources to satisfy unlimited wants.
 Key questions:
o What to produce?
o How to produce?
o For whom to produce?

2. Basic Economic Principles

 Scarcity: Resources are limited, forcing choices.


 Opportunity Cost: The next best alternative forgone when making a decision.
 Marginal Analysis: Decision-making based on additional benefits vs. additional costs.

3. Types of Economies

 Market Economy: Decisions made by individuals and businesses (e.g., USA).


 Command Economy: Centralized government planning (e.g., North Korea).
 Mixed Economy: Combination of market and government intervention (e.g., most
modern economies).

4. Supply and Demand

 Demand: Quantity consumers are willing and able to buy at various prices.
o Law of Demand: Price ↑ → Quantity Demanded ↓.
 Supply: Quantity producers are willing and able to sell at various prices.
o Law of Supply: Price ↑ → Quantity Supplied ↑.
 Equilibrium: Point where quantity demanded equals quantity supplied.
 Shifters of Demand: Income, tastes, prices of related goods, expectations, number of
buyers.
 Shifters of Supply: Technology, input costs, taxes/subsidies, expectations, number of
sellers.

5. Economic Systems
 Capitalism: Private ownership, profit motive, competitive markets.
 Socialism: Public ownership, equitable distribution of resources.
 Communism: Government control of all resources and production.

6. Microeconomics vs. Macroeconomics

 Microeconomics: Study of individual units (consumers, firms, markets).


o Topics: Elasticity, market structures, consumer behavior.
 Macroeconomics: Study of the whole economy.
o Topics: GDP, inflation, unemployment, fiscal and monetary policies.

7. Key Macroeconomic Indicators

 Gross Domestic Product (GDP): Total value of goods/services produced in an


economy.
 Inflation: General rise in prices over time.
 Unemployment Rate: Percentage of labor force without jobs but seeking work.

8. Market Failures and Government Role

 Market Failures: Situations where markets fail to allocate resources efficiently.


o Examples: Externalities, public goods, monopolies.
 Government Role: Provide public goods, enforce regulations, redistribute income,
stabilize the economy.

9. International Trade

 Comparative Advantage: Ability to produce goods at a lower opportunity cost.


 Trade Benefits: Increases variety, lowers prices, boosts innovation.
 Protectionism: Tariffs, quotas to protect domestic industries.
 Globalization: Interconnected economies via trade, investment, technology.

10. Key Theories

 Adam Smith: "Invisible hand" guiding free markets.


 John Maynard Keynes: Government intervention during economic downturns.
 Milton Friedman: Importance of monetary policy in controlling inflation.
11. Common Graphs in Economics

 Supply & Demand Curve: Illustrates market equilibrium.


 Production Possibility Frontier (PPF): Shows trade-offs and efficiency.
 Circular Flow Diagram: Visualizes the economy’s flow of goods, services, and money.

12. Economic Growth

 Driven by:
o Capital Investment: Tools, machines, infrastructure.
o Technological Advancements: Innovation boosting productivity.
o Human Capital: Education and skill development.

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