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Introduction to Economics Cheat Sheet by

Introduction to Economics Notes.

Defini­tions

Economics
the study of how society manages its scarce (limited) resources.
 
Scarcity
the limited nature of society's resources.

Resources Allocation

Economic systems can be viewed as:
 
1. Comman­d/C­ent­rally Planned Economy
the government makes all the pricing and allocation decisions.
 
2. Market Econom­y/L­ais­sez­-faire Economy (free market)
prices and allocation decisions are determined by the market forces.
 
3. Mixed Economy
an economy that uses both market & non-market signals in allocating goods and resources.

Types of Economics

 
1. Microe­con­omics
the study of how households and firms make decisions and how they interact in markets.
 
2. Macroe­con­omics
the study of econom­y-wide phenomena (ex. Inflation, unempl­oyment, and economic growth).
 

Economic Statements

1. Positive Statement (positive economics)
claims that attempt to describe the world as it is; factual.
 
2. Normative Statement (normative economics)
claims that attempt to prescribe how the world should be; what should be.
 
When economists make normative statements, they act more as policy advisors than as scient­ists.

Defini­tions

Free Good
a good that is not scarce, and is available without a limit.
 
Economic Surplus
the difference between the benefit of taking an action minus its cost.

Economic Surplus

Production Possib­ility Frontier

  

The Scarcity Principle (no-fr­ee-­lunch principle)

"­Having more of one thing means having less of another thing."­
 
- scarcity is not only limited to money.

Cost-b­enefit Principle

"­action should only be taken if the benefits are greater than the costs."­

Cost-b­enefit Analysis

a method for assessing the desira­bility of a project taking into account the costs and benefits involved.
 
- a decision is only taken if the benefits exceeds the cost.

Opport­unity Cost

the cost expressed in terms of the best altern­ative foregone.
 
Opport­unity Cost = Explicit cost + Implicit cost
 
Implicit Costs
what you give up.
Explicit Costs
what you opt for.
 
Opport­unity costs are unique to economists, financial accoun­tants only recognise explicit costs.

Production Possib­ility Frontier
 

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  • Published: 28th March, 2024

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