Introduction to Economics and Microeconomics

Introduction to Economics

• Economics is the social science that studies how societies allocate scarce resources to satisfy unlimited wants and needs.
• It examines the production, distribution, and consumption of goods and services.
• Microeconomics focuses on individual agents and markets, while macroeconomics analyzes the entire economy.
• Key concepts include supply and demand, opportunity cost, and market equilibrium.

Microeconomics

• Supply and Demand: The interaction of supply (the quantity of a good or service that producers are willing and able to offer at various prices) and demand (the quantity of a good or service that consumers are willing and able to buy at various prices) determines the market price and quantity.
• Market Structures: Economies have different market structures, such as perfect competition (many buyers and sellers, homogenous products), monopolies (single seller), oligopolies (a few dominant sellers), and monopolistic competition (many sellers with differentiated products).
• Elasticity: Measures the responsiveness of quantity demanded or supplied to a change in price, income, or other factors.
• Production and Costs: Firms seek to maximize profits by minimizing costs and maximizing revenue. Key cost concepts include fixed costs, variable costs, total costs, marginal costs, and average costs.
• Market Failures: Situations where markets fail to efficiently allocate resources, such as externalities (positive or negative impacts on third parties) and public goods (non-excludable and non-rivalrous).

Macroeconomics

• Gross Domestic Product (GDP): A measure of the total value of goods and services produced in an economy over a specific period.
• Inflation: A general increase in the prices of goods and services in an economy over time.
• Unemployment: The percentage of the labor force that is actively seeking employment but unable to find work.
• Economic Growth: An increase in the productive capacity of an economy over time, often measured by the increase in GDP.
• Fiscal Policy: Government spending and taxation policies designed to influence the economy, including using spending to stimulate demand or raise tax revenue.
• Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
• Business Cycles: Fluctuations in economic activity, characterized by periods of expansion (growth) and contraction (recession) in GDP.

Key Economic Schools of Thought

• Classical Economics: Emphasizes free markets, limited government intervention, and the self-regulating nature of the economy.
• Keynesian Economics: Advocates for government intervention to stabilize the economy during recessions and depressions, through fiscal policy.
• Monetarism: Focuses on the role of money supply in influencing inflation and economic growth.
• Austrian Economics: Emphasizes the role of subjective value, market processes, and the importance of sound money.

International Economics

• Trade: The exchange of goods and services between countries.
• Comparative Advantage: The ability of a country to produce a good or service at a lower opportunity cost than another country.
• Protectionism: Policies that restrict international trade, such as tariffs and quotas, to protect domestic industries.
• Exchange Rates: The value of one currency in terms of another currency.
• Balance of Payments: A record of all transactions between a country and the rest of the world.