Economics

• Economics


  Studies how individuals and societies use limited resources to satisfy unlimited wants
• Schools of economic thought

  • Pre-classical economy (Ancient economic thought, Scholasticism, Mercantilism, Physiocrats)
  • Classical school (focuses on the tendency of markets to move to equilibrium - Adam Smith)
  • Austrian school (Carl Menger, F.A. Hayek, Ludwig von Mises)
  • Keynesian school (John Maynard Keynes)
• Keynes vs Hayek


  Austrian vs Keynesian schools
• Fundamental economic problem


  Individuals and societies must choose among available alternatives due to scarcity
• Opportunity cost


  The cost of any activity measured in terms of the value of the best alternative that is not chosen (that is foregone)
• Economic cost


  Accounting cost + Opportunity cost
• Homo economicus


  The concept of humans who are rational and will always attempt to maximize their utility - whether it be from monetary or non-monetary gains
• Homo reciprocans


  The concept that human beings are primarily motivated by the desire to be cooperative, and improve their environment
• Economic goods, free goods, and economic bads

  • Economic good (scarce good) - quantity demanded exceeds quantity supplied at zero price
  • Free good - quantity supplied exceeds quantity demanded at zero price
  • Economic bad - people are willing to pay to avoid the item
• Factors of production


  • Land (natural resources, the "free gifts of nature")
  • Labour (the contribution of human beings)
  • Capital (machines, buildings, tools, plant and equipment, "financial capital" used to buy non-financial capital)
• Resource payments


  • Land - rent
  • Labour - wages
  • Capital - interest
• Information economics


  Branch of microeconomic theory that studies how information affects an economy and economic decisions
• Positive economics


  Attempts to describe how the economy functions, relies on testable hypotheses
• Normative economics


  Relies on value judgements to evaluate or recommend alternative policies, often used by politicians
• Economic methodology


  Observe a phenomenon, make simplifying assumptions and formulate a hypothesis, generate predictions, and test the hypothesis
• Ceteris paribus


  Latin phrase meaning "with other things the same", used to simplify reality in economics
• Logical fallacies


  • Hasty generalization
  • Post hoc, ergo propter hoc (association as causation)
• Microeconomics


  The study of individual economic agents and individual markets
• Macroeconomics


  The study of economic aggregates, studies the economy as a whole
• Types of relationships


  • Direct relationship
  • Inverse relationship
  • Independent relationship
• Linear relationships


  Possess a constant slope, defined as Y=mX+b where m=slope and b=Y-intercept
• Henry Hazlitt: 'The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.'
• William Graham Sumner: 'The Forgotten Man'