Introduction to Economics

• Economics is the study of how people manage their desires considering decision-making, social norms, and realities.
• The three core economic coordination challenges are deciding what and how much to produce, how to produce it, and for whom.
• Scarcity arises from unlimited wants exceeding production capacity.
• Scarcity describes insufficient available goods to meet desires.
• The intensity of scarcity varies.
• Goods, services and resource availability are influenced by technology and actions.

Microeconomics

• Microeconomics is the study of individual choices in the face of economic factors.
• Microeconomics analyzes the pricing strategies of companies.
• Microeconomics analyzes consumer choices regarding purchases.
• Microeconomics analyzes how markets allocate resources.

Macroeconomics

• Macroeconomics studies the economy in totality.
• Macroeconomics studies Inflation.
• Macroeconomics studies Unemployment.
• Macroeconomics studies Economic growth.

Economic Reasoning

• Economic reasoning analyzes issues and weighs costs against benefits.
• Economic reasoning involves focusing on significant aspects and overlooking unimportant ones.
• Steve Levitt uses economic reasoning to explain why individuals choose to become drug dealers in Freakonomics.
• The appeal of drug dealing is the higher financial benefit compared to minimum wage, influencing the decision.

Marginal Analysis

• Marginal analysis relies on comparing the additional costs versus the additional benefits when making decisions.
• Marginal cost refers to the extra cost above costs already sustained.
• Marginal benefit refers to the additional benefit above the benefit already received.
• This approach operates under the assumption that everything has a cost.
• If marginal benefits surpass marginal costs, pursue an action (MB > MC).
• If marginal costs exceed marginal benefits, avoid an action (MC > MB).

Opportunity Cost

• Opportunity cost represents the potential benefit forgoing the next best option.
• Opportunity cost should be less than the chosen benefit.
• Opportunity cost serves as the foundation for economic cost-benefit analysis.
• College opportunity costs include foregone income and alternative uses of tuition money.
• Government opportunity costs include healthcare or education spending relative to war expenses.

Economic and Market Forces

• Economic forces are reactions to scarcity.
• Social and political forces influence market forces and often work against the invisible hand.
• Market forces operate freely within a market.
• The invisible hand, a market force, guides market actions through the price mechanism.
• Shortages lead to price increases.
• Surpluses lead to price decreases.

The Invisible Hand Theorem

• In a market economy, the price mechanism efficiently allocates resources.
• Prices decrease when supply exceeds demand.
• Prices increase when demand exceeds supply.
• Efficiency means achieving goals at the lowest possible cost.

Objective and Subjective Economic Policy

• Economic policies involve government actions or inactions affecting the economy.
• Objective policy analysis separates value judgments from analysis.
• Subjective policy analysis reflects the analyst's perspective.

Categories of Economics

• Positive economics studies the economy as it is, while normative economics studies what the goals of the economy should be.
• The art of economics uses positive economics to achieve normative goals.
• Positive economics questions how markets operate.
• Normative economics questions desired policy goals.
• The art of economics questions how to achieve societal goals given economic realities.

Economic Coordination

• The three coordination problems are what to produce, how to produce it, and for whom to produce it.
• Microeconomics studies individual choice while macroeconomics studies the economy.

Economic Reality

• Economic reality is controlled by economic, political, and social forces.
• Market forces, economic forces, and scarcity are always at work.
• "There ain't no such thing as a free lunch" embodies the concept of opportunity cost.

Theorems and Economics Divisions

• Under certain conditions, the market, through its price mechanism, will allocate scarce resources efficiently.
• Theorems are propositions that follow from the assumptions of a model.
• Precepts are the guides for policies based on theorems, normative judgments, and empirical observations.
• Economics is subdivided into positive, normative, and art of economics.