Economics and Personal Finance/Intro to Economics

Economics is the study of how people use their scarce resources to satisfy their endless wants. Microeconomics is the branch of the eocnomic theory that deals with the behavior and decision-making of small units (individuals and firms). Macroeconomics is the branch of the economic theory that deals with the behavior and decision-making of large units (government).

A producer is a person that makes things while a consumer is a person who buys the things. A need is something similar to air, food, or shelter which is necessary for survival while a want is an item that is desirable but is not essential.

Production

 * 1) Labor/Human Resources: People who perform physical or mental work.
 * 2) Land/Natural Resources: A resource that is from mother nature, similar to: water, fuel, trees, minerals, etc.
 * 3) Capital: Humankind-created resources made to create goods and services, such as a stove, oven, printer, etc.
 * 4) Entrepreneurs: Businessmen who are risk-takers who organize these resources.

Traditional

 * Decisions that are based upon custom and traditions.
 * Activities are centered upon a small community, family or tribe.
 * Bartering/trading instead of selling for a profit.

Free Market Economy/Capitalism/Free Enterprise

 * Private ownership
 * Individuals compete to earn a profit
 * Prices are determined by a supply and demand process
 * No government involvement
 * Advantages
 * Freedom of choice, innovation is encouraged
 * Disadvantages
 * Income inequality, lack of security, lack of protection for the workers/consumers.

Command Economy (Cuba, North Korea)

 * Government/central authority controls everything, such as the products and prices
 * Government owns the resources
 * Advantages
 * No competition
 * Disadvantages
 * Lack of consumer choice, very little freedom, little incentive to work hard

Mixed Economy

 * Combination of economies
 * The government and the individuals share decision-making
 * The U.S. is capitalist (market), but the government regulates. Most economies are mixed.

Costs
Benefits are things that are favorable to a decision maker vs. Costs are things that are unfavorable to a decision maker.

Unintended Consequences are unexpected results [consequences] of a decision.

Oppertunity cost is what you give up for when you have made a choice between two things.

If the marginal benefit, the total satisfaction coming from an action, is smaller than the marginal costs, the total cost coming from an action, then do NOT do it!