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Introduction to Economics Cheat Sheet by

Introduction to Economics Notes.


the study of how society manages its scarce (limited) resources.
the limited nature of society's resources.

Resources Allocation

Economic systems can be viewed as:
1. Comman­d/C­ent­rally Planned Economy
the government makes all the pricing and allocation decisions.
2. Market Econom­y/L­ais­sez­-faire Economy (free market)
prices and allocation decisions are determined by the market forces.
3. Mixed Economy
an economy that uses both market & non-market signals in allocating goods and resources.

Types of Economics

1. Microe­con­omics
the study of how households and firms make decisions and how they interact in markets.
2. Macroe­con­omics
the study of econom­y-wide phenomena (ex. Inflation, unempl­oyment, and economic growth).

Economic Statements

1. Positive Statement (positive economics)
claims that attempt to describe the world as it is; factual.
2. Normative Statement (normative economics)
claims that attempt to prescribe how the world should be; what should be.
When economists make normative statements, they act more as policy advisors than as scient­ists.


Free Good
a good that is not scarce, and is available without a limit.
Economic Surplus
the difference between the benefit of taking an action minus its cost.

Economic Surplus

Production Possib­ility Frontier


The Scarcity Principle (no-fr­ee-­lunch principle)

"­Having more of one thing means having less of another thing."­
- scarcity is not only limited to money.

Cost-b­enefit Principle

"­action should only be taken if the benefits are greater than the costs."­

Cost-b­enefit Analysis

a method for assessing the desira­bility of a project taking into account the costs and benefits involved.
- a decision is only taken if the benefits exceeds the cost.

Opport­unity Cost

the cost expressed in terms of the best altern­ative foregone.
Opport­unity Cost = Explicit cost + Implicit cost
Implicit Costs
what you give up.
Explicit Costs
what you opt for.
Opport­unity costs are unique to economists, financial accoun­tants only recognise explicit costs.

Production Possib­ility Frontier



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