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Unit Overview | Basic Economic Concepts
Unit Overview | Basic Economic Concepts
Weight on the Exam: 5-10%
Essential Questions:
How do people make the most out of the resources they have?
What are supply and demand- and how do they affect prices?
How do surpluses or shortages in a market affect prices?
Big Ideas Covered:
Markets
Macroconomic Models
The fundamental issue in economics is choice. For example, individuals make choices about what goods to buy, how much money to save, and what kind of work they should do. Similarly, companies make choices about what goods or services to produce, where to operate their factories or stores, and whom to hire. Taken together, the sum of all of these choices shapes the economy of a country.
Individuals make choices about:
what goods to buy
how much money to save
what kind of work they should do
Companies make choices about:
what goods or services to produce
where to operate their factories or stores
whom to hire
Taken together, the sum of all of these choices shapes the economy of a country.
PPC is a model to show the tradeoffs associated with allocating resources
Comparitive Advantage and Opportunity Costs determine the terms of trade for exchange.
The law of demand states there is an inverse relationship between price and quantity demanded, leading to a downward-sloping demand curve.
The law of supply states there is a positive relationship between price and quantity supplied, leading to an upward-sloping supply curve.
Equilibrium is achieved at the price at which quantities demanded and supplied are equal.
In our global economy even the simplest decisions you make – say, what to have for breakfast – are shaped by the decisions of thousands of other people, from the banana grower in Costa Rica who decided to grow the fruit you eat to the farmer in Iowa who provided the corn in your cornflakes. And because each of us depends on so many others – and they, in turn, depend on us – our choices interact. So although all economics at a basic level is about individual choice, in order to understand behavior within an economy we must also understand economic interaction – how my choices affect your choices, and vice versa.
–Krugman, p. 1
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