Microeconomics
WHAT IS ECONOMICS (Chapter 1)
DEFINITION OF ECONOMICS * Scarcity: Limited resourcesTime, money. * Inability to satisfy all of our wants * Faced with scarcity we must choose among available alternatives * Trade offs * Incentive: Reward that encourages and action or penalty that discourages * Microeconomics: Choices of: * Individuals * Businesses * The way these choices interact in markets and the influence of the government * Macroeconomics: * Study of the performance of the national economy and the global economy * E.g. Why did incomes in South Africa grow rapidly between 2004 and 2007
WHAT, HOW, FOR WHOM?
WHAT:
* Goods or services * Changes over time
HOW:
Produced using productive resources called factors of production
Factors of Production: * Land: Natural resourcesEarn rent * Labour: Work, time and effort that people devote to producing goods and servicesEarns Wages * Human Capital: affects the quality of labour * Capital: Tools, instruments, machines, building etc. Earns interest * Financial capital is not a productive resource * Entrepreneurship: Human resource that organises land, capital and labourEarns profit * Come up with new ideas about what and how to produce * Make decisions, bear the risks that arise from these decisions
THE ECONOMIC WAY OF THINKING:
CHOICES AND TRADE OFFS:
We face scarcityMust make choiceselect from available alternatives * Trade off: Giving up one thing to get something else
OPPORTUNITY COST:
Highest-valued alternative forgone
CHOOSING AT THE MARGIN:
Make your decision at the margin: compare the benefit of an activity with its cost * Marginal Benefit: Benefit that arises from an increase in activity * Marginal Cost: Cost of an increase in activity
To decide you compare MB and MC * If MB > MCincrease in the action is rational * If MB< MC Action should not be taken
NB: By evaluating MB and MC, choosing only
DEFINITION OF ECONOMICS * Scarcity: Limited resourcesTime, money. * Inability to satisfy all of our wants * Faced with scarcity we must choose among available alternatives * Trade offs * Incentive: Reward that encourages and action or penalty that discourages * Microeconomics: Choices of: * Individuals * Businesses * The way these choices interact in markets and the influence of the government * Macroeconomics: * Study of the performance of the national economy and the global economy * E.g. Why did incomes in South Africa grow rapidly between 2004 and 2007
WHAT, HOW, FOR WHOM?
WHAT:
* Goods or services * Changes over time
HOW:
Produced using productive resources called factors of production
Factors of Production: * Land: Natural resourcesEarn rent * Labour: Work, time and effort that people devote to producing goods and servicesEarns Wages * Human Capital: affects the quality of labour * Capital: Tools, instruments, machines, building etc. Earns interest * Financial capital is not a productive resource * Entrepreneurship: Human resource that organises land, capital and labourEarns profit * Come up with new ideas about what and how to produce * Make decisions, bear the risks that arise from these decisions
THE ECONOMIC WAY OF THINKING:
CHOICES AND TRADE OFFS:
We face scarcityMust make choiceselect from available alternatives * Trade off: Giving up one thing to get something else
OPPORTUNITY COST:
Highest-valued alternative forgone
CHOOSING AT THE MARGIN:
Make your decision at the margin: compare the benefit of an activity with its cost * Marginal Benefit: Benefit that arises from an increase in activity * Marginal Cost: Cost of an increase in activity
To decide you compare MB and MC * If MB > MCincrease in the action is rational * If MB< MC Action should not be taken
NB: By evaluating MB and MC, choosing only