if the rules (laws) are clear and stable (predictable), then individuals can make economic adjustments
rules of the game
efficiently allocate scarce resources by comparing expected benefits to expected costs
the study of how individuals allocate scarce resources among unlimited wants and desires within a set of rules
goods for which we are willing to sacrifice something to get, makes economizing necessary
Scarce goods, scarcity
what we must give up in order to have a good. Not everyone will have the same ___. The cost of obtaining anything is the value placed on whatever must be sacrificed in order to obtain it.
what ever people value, e.g., money, time
Price is a means of allocating scarce goods.
(Lottery, first-come-first-served, equally, merit, might-is-right)
"Wealth of Nations" (in 1776), “invisible hand” works without government planning, he observed the free market
“Principles of Political Economy and Taxation” (in 1817). Law of comparative advantage and argued that free trade benefited all.
making available more scarce resouces that consumers desire, an alternative to production, trade-offs
is determined by the opportunity cost, opens the possibility of trade, whoever gives up less in an exchange has the...
“Communist Manifesto” (in 1848) Also observed that
specialization of labor leads to capitalism and trade, but thought that the flaws in society would ultimately cause that system to collapse.
4 Men identified with the _____ school of thought suggesting (late 1880’s to early 1900’s) economics is the study of the intentional human actions (less about math) of individuals, believed the market should pull away from gov't regulation, human action not numbers.
The Austrian School of Economics
•Eugen Von Bohm-Bawerk,
•Ludwig von Mises
whoever can produce more in a given period has the...
an increase in wealth, the benefit outweighs the cost
additional benefits outweigh additional cost
illustration of the maximum combination of producation using a given set of resources and talent
Production Possabilities Fronteir (PPF)
occurs when a producer believes they have a comparative advantage on a product, only producing that one
the cost of finding the buyer/seller to trade with
the knowledge necessary to actively and wisely engage in the trade
these help reduce transaction and information costs
middlemen or brokers
the amount that buyers are willing and able to purchase at a given price
the inverse relationship between price and the quantity demanded at each price, everything else equal.
a measure of the responsiveness of demand or supply
the responsiveness to changes in price
the amount that sellers are willing and able to sell at a given price
the direct relationship between price and the quantity supplied at each price, everything else equal.
past expenses that are not relevent, do not matter to our current decision making
costs that vary with level of production (ex. produce more, higher cost)