This document summarizes key concepts from the first 6 chapters of an economics textbook. Chapter 1 introduces fundamental economic principles like scarcity, efficiency, and opportunity cost. Chapter 2 discusses economic models and the differences between micro and macroeconomics. Chapter 3 covers how trade can benefit countries through comparative advantage. Chapter 4 analyzes supply and demand models. Chapter 5 defines price elasticity. Chapter 6 reviews government policies like price ceilings and floors that can impact markets.
This document summarizes key concepts from the first 6 chapters of an economics textbook. Chapter 1 introduces fundamental economic principles like scarcity, efficiency, and opportunity cost. Chapter 2 discusses economic models and the differences between micro and macroeconomics. Chapter 3 covers how trade can benefit countries through comparative advantage. Chapter 4 analyzes supply and demand models. Chapter 5 defines price elasticity. Chapter 6 reviews government policies like price ceilings and floors that can impact markets.
This document summarizes key concepts from the first 6 chapters of an economics textbook. Chapter 1 introduces fundamental economic principles like scarcity, efficiency, and opportunity cost. Chapter 2 discusses economic models and the differences between micro and macroeconomics. Chapter 3 covers how trade can benefit countries through comparative advantage. Chapter 4 analyzes supply and demand models. Chapter 5 defines price elasticity. Chapter 6 reviews government policies like price ceilings and floors that can impact markets.
This document summarizes key concepts from the first 6 chapters of an economics textbook. Chapter 1 introduces fundamental economic principles like scarcity, efficiency, and opportunity cost. Chapter 2 discusses economic models and the differences between micro and macroeconomics. Chapter 3 covers how trade can benefit countries through comparative advantage. Chapter 4 analyzes supply and demand models. Chapter 5 defines price elasticity. Chapter 6 reviews government policies like price ceilings and floors that can impact markets.
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Chapter 1: Ten Principles of Economics Chapter 2: Thinking like an economist
Scarcity—Limited resources and unlimited wants Economic Models
Economics —Study of how society manages its Circular-flow diagram —a visual model of the scarce resources economy that shows how dollars flow through Efficiency —The property of society getting the most markets among households and firms. from its scarce resources Equality —The property of distributing economic prosperity uniformly among society’s members Rational —Systematically and purposefully doing the best you can to achieve your objectives Opportunity cost —Whatever is given up to get something else Marginal changes —Incremental adjustments to an existing plan Incentive —Something that induces a person to act Market economy —An economic system where interaction of households and firms in markets determines the allocation of resources Property rights —The ability of an individual to own Production possibilities frontier— a graph that and exercise control over scarce resources shows the combinations of output that the “Invisible hand” —The principle that self-interested economy can possibly produce given the market participants may unknowingly maximize the available factors of production and the available welfare of society as a whole production technology. Market failure —A situation in which the market fails to allocate resources efficiently Externality —When one person’s actions have an impact on a bystander Market power —The ability of an individual or group to substantially influence market prices Monopoly —The case in which there is only one seller in the market Productivity —The amount of goods and services produced from each unit of labor input Microeconomics —the study of how households Inflation —An increase in the overall level of prices and firms make decisions and how they interact Business cycle —Fluctuations in economic activity in markets How People Make Decisions Macroeconomics —the study of economy-wide People face trade-offs phenomena, including inflation, unemployment, The cost of something is what you give up to get it and economic growth Rational people think at the margin Positive statements— claims that attempt to People respond to incentives describe the world as it is How People Interact Pormative statements— claims that attempt to Trade can make everyone better off prescribe how the world should be Markets are usually a good way to organize Chapter 3: Interdependence and economic activity the Gains from Trade Government can sometimes improve market Absolute advantage —The ability to produce a outcomes good using fewer inputs than another producer How the Economy Thinks as a whole Comparative advantage —The ability to produce A country’s standard of living depends on its ability a good at a lower opportunity cost than another to produce goods and services producer Prices rise when the government prints too much Gains from trade —The increase in total money production due to specialization allowed by trade Society faces a short-run trade-off between inflation Opportunity cost—Whatever is given up to and unemployment obtain some item Imports —Goods produced abroad and sold Law of supply and demand—The claim that the price domestically of any good adjusts to bring the quantity supplied Exports —Goods produced domestically and sold and quantity demanded for that good into balance abroad Variables that shift Demand Curve Chapter 4: The Market Forces of Income Supply and Demand Price of related goods Market—A group of buyers and sellers of a particular Tastes good or service Expectations Competitive market —A market in which there are Number of buyers many buyers and sellers so that each has a negligible Variables the shifts Supply Curve impact on the market price Input Prices Monopoly —Market with only one seller Technology Quantity demanded —The amount of a good that Expectations buyers are willing and able to purchase Number of sellers Law of demand —The claim that, other things equal, Chapter 5: Elasticity and Its the quantity demanded of a good falls when the price of the good rises Application Elasticity—A measure of the responsiveness of the Demand schedule—A table that shows the quantity demanded or quantity supplied to one of its relationship between the price of a good and the quantity demanded determinants. Price elasticity of demand —A measure of how much Demand curve —A graph of the relationship the quantity demanded of a good responds to a between the price of a good and the quantity change in the price of that good. demanded Elastic —When the quantity demanded or supplied Normal good —A good for which, other things equal, responds substantially to a change in one of its an increase in income leads to an increase in demand determinants. Inferior good —A good for which, other things equal, Inelastic —When the quantity demanded or an increase in income leads to a decrease in demand supplied responds only slightly to a change in one of Substitutes —Two goods for which an increase in the its determinants. price of one leads to an increase in the demand for Total revenue —The amount paid by buyers and the other received by sellers of a good computed as P × Q. Complements —Two goods for which an increase in Income elasticity of demand —A measure of how the price of one leads to a decrease in the demand much the quantity demanded of a good responds to for the other a change in consumers’ income. Quantity supplied —The amount of a good that Cross-price elasticity of demand —A measure of how sellers are willing and able to sell much the quantity demanded of one good responds Law of supply —The claim that, other things equal, to a change in the price of another good. the quantity supplied of a good rises when the price Price elasticity of supply—A measure of how much of the good rises the quantity supplied of a good responds to a change Supply schedule —A table that shows the in the price of that good. relationship between the price of a good and the Normal good —A good characterized by a positive quantity supplied income elasticity. Supply curve —A graph of the relationship between Inferior good —A good characterized by a negative the price of a good and the quantity supplied income elasticity. Equilibrium —The quantity supplied and the quantity Chapter 6: Supply Demand and demanded at the equilibrium price Equilibrium price —The price that balances quantity Government Policies supplied and quantity demanded Price Ceiling—A legal minimum on the price at which Equilibrium quantity —A situation in which the price a good can be sold has reached the level where quantity supplied equals Price floor —A legal maximum on the price at which quantity demanded a good can be sold Surplus —A situation in which quantity supplied is Tax incidence —The manner in which the burden of greater than quantity demanded a tax is shared among participants in a market Shortage—A situation in which quantity demanded is Tax wedge —The difference between what the buyer greater than quantity supplied pays and the seller receives after a tax has been imposed. (Note: When Price Ceiling is below the equilibrium, the Other Benefits of International Price Ceiling is binding and creates shortage) (Note: When Price floor is above the equilibrium, the Trade Increased Variety of goods Price Floor is binding and creates a surplus) Lower cost through economic scale Chapter 7: Consumers, Producers, and Increased competition the Efficiency of Markets Enhanced flow of ideas Welfare economics —The study of how the The Arguments for Restricting Trade allocation of resources affects economic wellbeing The Jobs Argument Willingness to pay —The maximum amount that a The National-Security Argument buyer will pay for a good The Infant-Industry Argument Consumer surplus —The amount a buyer is willing to The Unfair-Competition Argument pay for a good minus the amount the buyer actually The Protection-as-a-Bargaining-Chip Argument pays for it Cost —The value of everything a seller must give up to produce a good Producer surplus —The amount a seller is paid for a good minus the seller’s cost of providing it Efficiency—The property of a resource allocation of maximizing the total surplus received by all members of society Equality —The property of distributing prosperity uniformly among the members of society Market failure —The inability of some unregulated markets to allocate resources efficiently Chapter 8: Application: The Costs of Taxation Tax wedge —The difference between what the buyer pays and the seller receives when a tax is placed in a market Deadweight loss —The reduction in total surplus that results from a tax Laffer curve—A graph showing the relationship between the size of a tax and the tax revenue collected
Chapter 9: Application: International
Trade The determinants of Trade World price Comparative Advantage Trade policies World price— the price of a good that prevails in the world market for that good Tariff —a tax on goods produced abroad and sold domestically