1. Humanity faces trade-offs

2. The cost of something is what you give up in order to get it.

3. Rational people consider the marginal quantity

4. People respond to incentives

5. Trade can make everyone better off

6. Markets are usually a good way to organize economic activities

7. Governments can sometimes improve market outcomes

8. A country’s standard of living depends on its ability to produce goods and services

9. When the government issues too much money, prices rise

10. Society faces a short-term trade-off between inflation and unemployment.

An intuitive model of how money flows between households and businesses

Factors of production: labor, land, capital, etc.

Business: Produces and sells goods and services, hires and uses factors of production

Households: own and sell factors of production, buy and consume goods and services

Factors of production market: Households selling, businesses buying

Markets for Goods and Services: Businesses for Sale, Households to Buy

The combination of the quantity of products an economy can produce when factors of production and production technology are given.

Resource allocation: If the same resources are used to produce products A and B, how to determine the quantity ratio of A/B

Principle 1: Trade-offs; Principle 2: Opportunity cost

Empirical expression

normative expression

Scientific judgment is different

Different values

feeling and reality

Absolute advantage: comparative advantage

Comparative advantage: one’s comparative advantage

Opportunity cost: The trade price is between two opportunity costs

Trade: can benefit everyone in society because it allows people to engage in activities in which they have a comparative advantage

Univariate

bivariate

Normal Goods: Other things being equal, an increase in income causes an increase in demand

Low-end goods: other things being equal, an increase in income causes a decrease in demand

Substitutes: An increase in the price of one good causes an increase in the demand for another good

Complementary goods: an increase in the price of one good causes a decrease in the demand for another good

Influencing factors: Hobbies, expectations, number of buyers

Influencing factors: input prices, technology, expectations, number of sellers

equilibrium price & equilibrium quantity

Supply Theorem: The price of any item will spontaneously adjust to balance the supply and demand for the item.

Surplus: supply is greater than demand

Shortage: quantity demanded is greater than quantity supplied

A measure of the response of demand or supply to changes in a certain determinant

Price elasticity of demand/supply: How responsive demand/supply is to price (elastic/inelastic)

Availability of close substitutes

Necessities and luxuries: Necessities are generally inelastic, while luxuries are highly elastic.

Market definition, narrow market definition is flexible, broad market definition is inelastic

Actual range, elastic in the long run, inelastic in the short run

Calculation: price elasticity of demand = percentage change in quantity demanded / percentage change in price Midpoint method, take the variation/average value

If the calculated elasticity value is >1, it is elastic; if the calculated elasticity value is <1, it is inelastic.

Total revenue: When elasticity > 1, price and total revenue move in opposite directions; when elasticity < 1, price and total revenue move in the same direction.

The price limit has no impact when supply exceeds demand; when supply is less than demand, there is a rush

Price lower limit, if supply is less than demand, there will be no impact; if supply exceeds demand, it will be unsaleable.

The impact of taxing sellers on the market. Taxes reduce the size of the market. Buyers pay more and sellers get less.

The impact of taxing buyers on the market. Taxes reduce the size of the market. Buyers pay more and sellers receive less.

The tax burden falls more on the inelastic market side

The amount a buyer is willing to pay for a good minus the amount he actually pays for it

Willingness to Pay: The highest price a buyer is willing to pay

Can be a good measure of economic well-being

The amount a seller gets from selling an item minus its cost of production

cost

Willingness to sell

Efficiency, resource allocation to maximize total surplus

Equality, buyers and sellers in the market have similar welfare levels

Equilibrium to maximize total surplus

deadweight loss

marginal tax rate on labor income

factors that determine trade

export country

import country

tariff

benefit

limit

Lack of property rights

Can't price

free

Regulation, which addresses externalities by regulating or prohibiting certain behaviors

subtopic

Correctional taxes, subsidies

tradable pollution permit

moral constraints

act of charity

Coase Theorem: Private parties can negotiate resource allocation at no cost, They can solve the externality problem on their own

national defense

basic research

anti-poverty

clean air and water

congested road

Personal Income Tax

social security

medical insurance

local tax

sale tax

tariff

other

national defense

medical

Pension

unemployment

Surplus: expenses < income

Deficit: Expenditure > Revenue

deadweight loss due to tax

The administrative burden of taxpayers paying taxes in accordance with the law

Marginal tax rate: the additional tax paid on an additional $1

Average tax rate: total tax/total income

fixed tax

Benefit principle

ability to pay principle

There are many sellers and buyers in the market

The items offered by each seller are generally the same

Companies can enter and exit the market freely

supply curve

average return

Marginal revenue

profit maximization

Costs that have been incurred and cannot be recovered

patent

copyright

ultra low cost

movie ticket

Airfare

discount coupon

quantity discount

Efforts to make monopoly industries competitive

Regulating the behavior of monopolies

Turn private monopolies into public enterprises

inaction

Features

advertise

brand

Collusion: Agreement between firms in a market on how much to produce or the price to charge

Cartel: A group of businesses that act together

Nash equilibrium (results of game theory)

prisoner's dilemma

dominant decision

subtopic

trade restrictions

antitrust laws

Product price, price increase increases demand

Technological change, labor-saving/labor-expanding technological innovation

Supply of other factors

Work-leisure trade-off

Hobbies change

Alternative opportunities change

migrant

Wages will adjust spontaneously to achieve a balance between supply and demand

Wage equals the value of the marginal product of labor

compensatory wage differential

Human capital: the accumulation of investments in people, such as education and on-the-job training

Ability, effort, opportunity

Poverty rate: the proportion of households with income below the poverty line

Poverty line: About three times the cost of adequate food in the U.S.

Utilitarianism: the starting point is utility

Liberalism: Justice

minimum wage laws

Welfare: subsidizing the income of the poor

Negative income tax, high tax on high income, subsidy tax on low income

In-kind transfers, no cash required

indifference curve

Impact of changes in income

Impact of price changes

income effect and substitution effect

better supervision

high salary

deferred payment

people are overconfident

People pay too much attention to the minutiae observed in real life

People are unwilling to change their ideas