|Section 1: Economics|
|Microeconomics - Unit 1|
The Definition of Economics
Wealth in this definition includes tangible products, such as cars and houses, as well as intangible products, such as more leisure time and cleaner air.
How Can We Best Increase Our Nation's Wealth?
Among other issues, there is controversy about the role of profits, consumer spending, savings, capital formation, income distribution, and unions. Should we more heavily tax profits to more equally distribute the wealth in our country? Should we encourage spending and discourage saving to stimulate economic growth, or should we do just the opposite? Do unions raise real wages or are they harmful to our economic growth? These are important economic issues, which we will elaborate on throughout the text. Let's define some important concepts first.
Marginal Benefit and Marginal Cost
When you make choices as a citizen, a business person, a student, or a government official, you make them, assuming you are rational and you make decisions voluntarily, by comparing marginal benefits and marginal costs. You will choose an activity (for example, going to school, accepting a job, or buying or selling a product), as long as your marginal benefit is equal to or greater than your marginal cost. When you choose to enroll in a college, you expect that your marginal benefit (a diploma, better job, or higher earnings) will be at least as great as your marginal costs (the value of your time, your expenses on books, tuition, and other costs). When you buy a car, you make that decision because your expected marginal benefits (freedom to travel without having to rely on others to provide rides, status, and ability to accept jobs further away) are at least as great as your marginal costs (price of the car, gas, insurance, and maintenance). A firm will make a specific number of products based on its marginal benefits and marginal costs. It will choose to increase production as long as its marginal benefit (marginal revenue) is at least as great as its marginal cost.
The Difference Between Macroeconomics and Microeconomics
Macroeconomics includes those concepts that deal with the entire economy or large components of the economy or the world. The nation's unemployment rate, inflation rates, interest rates, federal government budgets and government fiscal policies, economic growth, the Federal Reserve System and monetary policy, foreign exchange rates and the balance of payments are typical topics discussed in macroeconomics.
Microeconomics includes those concepts that deal with smaller components of the economy. Individual demand and supply of goods and services, the price elasticity (sensitivity) of demand for goods and services, production, cost functions, and profit maximization in various industries, income inequality and income distribution, and the effect of protectionism (tariffs, quotas, and other trade restrictions) on international trade are topics generally included in microeconomics.
|Last Updated on Sunday, 30 December 2012 09:11|