S4 CH1

A. What is economics?
 = social science
 study resource allocation satisfy human want
based on constrained 局限下 maximization

 economics explain& predict → human behavior& social phenomena

using different economic theories
∴ concern 3 basic concept: wants + scarcity + choice

B. Wants
 = desire for G& S
 have desire even no ability satisfy desire
 wants unlimited → prefer more to less for thing we desire
 have new wants when some wants satisfied

C. Scarcity
 = situation resource qty not enough satisfy all wants
 = a state we want more than have
 arise not ∵ resource supply fixed
resource scare when qty available not enough satisfy all wants
 a relative concept

D. Choice
 ∵ limited resource + unlimited wants → need make choice decide satisfy which wants
 result of scarcity
 process making decision among available options

E. Choice& Constrained maximization

 scarcity → not get all good we want → need make choice decide satisfy which wants
 constrained maximization:
economist assume ppl are constrained maximizer
→ ppl maximize benefit from choice subject to constraints they face

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F. Competition& Discrimination
 under scarcity → compete with others for limited resource

 competition = situation ≥ 2 ppl compete for limited resource

 Robinson Crusoe (=one man) economy → no competition ∵ no one compete with

∴ scarcity imply competition only if exist ≥ 2 ppl

 in competition → rule + regulation need decide who win / lose

∴ competition always discriminatory 歧視 → competition imply discrimination

 2 types competition

1) P competition:
 allocate resource criteria = anyone pay higher P obtain limited resource

2) non P competition:
 allocate resource criteria = other than P
 e.g first come first serve / by ability / by need / by ballot (=draw=lot)

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G. Opportunity cost
 = highest valued option forgone

 arise ∵ choice → make choice need give up other → obtain most prefer one

 not all given up alternatives are OC → only highest valued option forgone is cost

 under constrained maximization→highest valued option forgone relevant to choice making

 no choice = no cost
∵ nth give up when making choice

 ∵ cost = highest valued option forgone

∴ change cost only when change in highest valued option forgone value
 change in chosen option value not affect cost
 highest value option forgone ↑ → OC ↑ (vice versa)

 time not cost:

time cost = highest valued alternative use of time

 full cost
 = sum of all highest valued alternative use of resource
 = explicit cost (monetary expense) + implicit cost (non monetary expense)

 implicit cost
 = highest valued alternative use of resource / = time cost
 e.g income forgone / rental income forgone / interest income forgone

 interest
 = cost paid by borrower obtain good earlier + lender premium return for deferring
consumption
 = cost of earlier availability of resource
 interest = principal ∗ inteerst rate
𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖
 interest rate = 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 ∗ 100%

 interest rate ↑ → present consumption cost ↑ → present consumption ↓

 interest exist even no $:

in barter economy → sb borrow 2 condom today exchange 3 condom next month

 past / historical / sunk cost ≠ cost ∵ not represent present / future option to give up

 different cost to different ppl ∵ ppl have different highest valued option forgone

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H. Goods
 = anything we desire
 2 types:
 economic (=scarce) goods
 free (=non scarce) goods

I. Economic goods
 = goods qty not enough satisfy all human wants → ppl prefer ↑ of it
 ppl compete get ↑ economic goods
 in general → ppl need pay cost get economic goods
 costly to provide

J. Free goods
 = goods qty enough satisfy all human wants → ppl not prefer ↑ of it
 no one compete get ↑ free goods
 not need pay cost get free good

K. How can we analyze economic issues?

1) positive analysis:
positive statement =
 statement about fact + concern ‘what is’/ ‘what happen’
 no value judgment + can be tested against fact

2) normative analysis:
normative statement =
 concern ‘should be’/ ‘what ought to be’
 involve value judgment + not be tested against fact
 not be confirmed& refuted 推翻

 positive economics& normative economics

 economic
= social science → apply scientific method study resource allocation based on
value-free statement

 economic theories → explain& predict behavior + be tested against fact

∴ all economics studies are positive

 normative economics involve value judgment

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L. Microeconomics VS Macroeconomics
1) microeconomics = study individual economic unit behavior
microeconomics study
 how household make consumption decision
 how firm make production decision
 how household& firm interaction determine resources allocation& income
distribution

2) macroeconomics = study aggregate phenomena of economy as a whole

 macroeconomics study broad economic relationship in an economy
 e.g total consumption / total production / national income / economy employment