MICORECONOMICS a.

When a government creates large quantities of the

nation’s money, the value of the money falls.
ECONOMY i. Inflation an increase in the overall level of
 comes from the Greek word oikonomos, which means prices in the economy
“one who manages a household. 10. SOCIETY FACES SHORT-RUN TRADEOFF
BETWEEN INFLATION AND UNEMPLOYMENT
ECONOMICS a. Most economists describe the short-run effects of
monetary injections as follows:
 Economics is a social science that focuses on the i. Increasing the amount of money in the
production, distribution, and consumption of goods and economy stimulates the overall level of
services, and analyzes the choices that individuals, spending and thus the demand for goods and
businesses, governments, and nations make to allocate services.
resources. ii. Higher demand may over time cause firms to
"SCARCITY AND CHOICES raise their prices, but in the meantime, it also
encourages them to hire more workers and
TEN RINCIPLES OF ECONOMICS produce a larger quantity of goods and services.
iii. More hiring means lower unemployment
1. People face trade offs. –
a. To get one thing that we like, we usually have to
give up another thing that we like. Making
decisions requires trading off one goal against
another.
2. THE COST OF SOMETHING IS WHAT YOU GIVE
UP TO GET IT
a. Making decisions requires comparing the costs and
benefits of alternative courses of action.
3. RATIONAL PEOPLE THINK AT THE MARGIN
a. Rational people systematically and purposefully do
the best they can to achieve their objectives, given
the available opportunities
4. PEOPLE RESPOND TO INCENTIVES
a. An incentive is something that induces a person to
act, such as the prospect of a punishment or a
reward.
5. TRADE CAN MAKE EVERYONE BETTER OFF
a. By trading with others, people can buy a greater
variety of goods and services at lower cost.
6. MARKETS ARE USUALLY A GOOD WAY TO
ORGANIZE ECONIMIC ACTIVITY
a. market economy allocates resources through the
decentralized decisions of many firms and
households as they interact in markets for goods
and services
7. GOVERNMENTS CAN SOMETIMES IMPROVE
OUTCOMES
a. the invisible hand can work its magic only if the
government enforces the rules and maintains the
institutions that are key to a market economy
8. A COUNTRY’S STANDARD OF LIVING DEPENDS
ON ITS ABILITY TO PRODUCE GOODS AND
SERVICES
a. - In nations where workers can produce a large
quantity of goods and services per unit of time,
most people enjoy a high standard of living; in
nations where workers are less productive, most
 Circular-flow diagram
people endure a more meager existence
9. PRICES RISE WHEN THE GOVERNMENT PRINTS
TOO MUCH MONEY
 o a visual model of the economy that shows how
money flow through markets among households
and firms
 Production possibilities frontier
o a graph that shows the combinations of output
that the economy can possibly produce given
the available factors of production and the
available production technology
 people face tradeoffs
 Production possibilities frontier a
o graph that shows the combinations of output
that the economy can possibly produce given
the available factors of production and the
available production technology
 Reason: Advancement of technology
BRANCHES OF ECONOMICS
 Microeconomics studies about
o Pricing policies of firms
o Households' decision on what to purchase
o How markets distribute resources
 Macroeconomics studies about
o Inflation
o Unemployment
o Growth
CHAPTER 2
THINKING LIKE AN ECONOMIST
 When economists are trying to explain the world, they
are scientists.
o Positive statements are descriptive. They make
a claim about how the world is.
 Example: "Minimum-wage laws cause
unemployment."
 When they are trying to help improve it, they are policy
advisers.
o Normative statements are prescriptive. They
make a claim about how the world ought to be.
 Example: "The government should
raise the minimum wage
GRAPHING
Many of the concepts that economists study can be expressed
with numbers—the price of bananas, the quantity of bananas
sold, the cost of growing bananas, and so on. Often, these
economic variables are related to one another. When the price
of bananas rises, people buy fewer bananas. One way of
expressing the relationships among variables is with graphs
TWO PURPOSES OF GRAPHS
1. When developing economic theories, graphs offer a
way to visually express ideas that might be less clear
if described with equations or words.
2. When analyzing economic data, graphs provide a
powerful way of finding and interpreting patterns
TYPES OF GRAPHS
PIE CHART
 Divided into "pie pieces" where the individual pie shows
the total amount and the pie reflect the percentage.
 It is useful in visually presenting how a total amount is
divided
BAR GRAPH
 A diagram in which the numerical values of variables are o Starts low on the left-hand side and goes up to
represented by the height or length of lines or rectangles the right-hand side. It is called upward sloping.
of equal width o Upward sloping represents direct relationship

TIME-SERIES GRAPH

 The data are connected by an uninterrupted line

COORDINATE SYSTEM

 Graphs is the picture of points in a coordinate system in

which points indicate relationships between numbers

 Straight line is called linear curve.

o High on left-hand side and goes down to the
right side
o Downward sloping indicates inverse
relationship.
o Inverse relationship - relationship between two
variables in which at the time goes up, the other
goes down.
 Ex. If the price of the chocolates goes
up, the quantity bought goes down

 Nonlinear curve –