ECON1001 NOTES WEEK 1
Introductory microeconomics
Microeconomics: the branch of economics that examines individual decision making by firms, households and consumers, and the way they interact in specific industries and markets
ECONOMIC QUESTIONS
What goods and services are produced and in what quantities?
How will the various goods and services be produced?
When will the various goods and services be produced?
Where will the various goods and services be produced?
Who will consume and produce the goods and services that are produced?
KEY IDEAS OF NEOCLASSICAL ECONOMICS
Scarcity: a situation in which all wants cannot be met because of limits to resources
Opportunity cost: the value of the best forgone alternative. Scarcity implies people must make a choice between which goods and services should be produced with the given resources.
Thinking at the margin: comparing the costs and benefits of a small change in behaviour. Cost benefit analysis: a process of thinking about the marginal benefit from taking an action in relation to the marginal cost. A particular action should only be taken if the marginal benefit from doing so is at least equal to the marginal cost. Sunk costs: costs that people have already paid, or committed to pay, which cannot be recovered. Eg spilt milk
Incentives: inducements people respond to when making choices. Can encourage change of behaviour.
Markets: an arrangement enabling economic exchanges between people to take place.
Market failure: any situation in which the market does not lead to an efficient outcome and in which there is a potential role for government

THINKING LIKE AN ECONOMIST the use of models and theories to investigate into economic problems and are abstractions and simplifications of reality economic model: an explanation of how the economy of part of the economy works theory: more generalised explanation of the economy and how it works correlation: the degree to which economic variables are observed to move together positively correlated: a situation in which an increase in one variable is associated with an increase in another variable (directly related) negatively correlated: a situation in which an increase in one variable is associated with a decrease in another variable (inversely related) causation: a relation of cause and effect between variables in which one variable is the determinant of another variable ceteris paribus: everything else constant positive economics: economic analysis that explains what happens in the economy and why, without making recommendations about economic policy (is about what is) normative economics: economic analysis that makes recommendations about economic policy (what should be)

Opportunity costs and economic growth

PRODUCTION POSSIBILITIES
Frontier/Curve (PPF/PPC) shows which combination of goods and services can be produced describes the set of possible output choices when limited resources are used efficiently production efficiency is achieved when it is not possible to