Review of Topics: Economics 101, Part 1

Chapters1, 2, 3, 8

 

What is Economics? Study of allocation of scarce resources to satisfy wants.

  • Microeconomics versus macroeconomics
  • Resources
  • Scarcity
  • Prices and scarcity
  • Opportunity cost
  • Wants versus needs
  • Efficient production means value outweighs opportunity costs
  • Allocation mechanisms: Command, Mixed and Market economies
  • Role of property rights in market economies
  • Examples: Cookies and milk, assigning classroom seats, international index of economic freedom

Economics Tools

  • Basics: algebra, slopes, graphs
  • Positive versus normative analysis
  • Economic Models: simplified views of the world
    • Assumptions
    • Prediction
    • Testing by Observation
    • Accept, reject, or modify the model
  • How graphs can be misleading

Resource Constraints

  • production possibility frontier: defined by resources and technology
  • Attainable, efficient and unattainable combinations
  • Opportunity costs, specialization, and the shape of the production possibility frontier

Role of Trade

  • Individual Production: resources and skills
  • Opportunity cost and the slope of the production possibility frontier
  • Comparative advantage- produce at lowest opportunity cost
  • Absolute advantage - produce using fewer resources
  • Specialization and trade
  • Barter vs monetary economies
  • The role of money in trade
  • Specialization and the rise of civilization
  • What shifts the Production Possibility Frontier?
  • Economic Growth: Debt, consumption, investment, savings
  • Principle of increasing opportunity costs or diminishing returns
  • Why we may produce at inefficient points inside the production possibility frontier

International Trade

  • NAFTA, DR-CAFTA, FTAA
  • Facts on exports, imports and balance of trade
  • Major trading partners
  • Gains from trade
  • Absolute advantage versus comparative advantage
  • Sources of comparative advantage
  • Can trade increase employment?
  • Tariffs, quotas, technical restrictions
  • GATT and World Trade Organization
  • Is NAFTA bad for the U.S.?

Market Demand and Supply

  • What is a market?
  • Market supply curves
  • Market demand curves
  • Equilibrium price and quantity
  • Things that shift supply curves
  • Things that shift demand curves
  • Complements and Substitutes
  • Normal and inferior goods
  • Excess supply
  • Excess demand
  • Path to equilibrium
  • Forecasting price and quantity