CV 2014 July 15

microeconomics behavior of individual markets and the smaller individual units that make up the broader economy -- businesses, consumers, investors, workers macroeconomics focuses on problems in the broader economy - inflation - unemployment - rate of economic growth invisible hand (free market economy) self-interested actions of individuals actually guide market outcomes to yield great economic benefits for the broader society mixed economy at one end: industries like farming and mining which are characterized by many buyers and selers and come closest to approximating Adam Smith's model of perfect competition other end: monopolies like the post office characterized by one seller and run by the government oligopoly industries which typically have a small number of large firms much more like to engage in collusive practices such as price fixing than the type of fierce competition envisioned by Adam Smith command economy government makes all important decisions about production and distribution three questions - what shall be produced? - how shall it be produced? - for whom shall it be produced for? three facets - scarcity - efficiency - equity (1) scarcity while goods are limited, wants are seemingly limitless even after two centuries of rapid economic growth production in the US is still not high enough to meet everyone's desires particularly in africa and asia, hundreds of millions of people suffer from hunger and material deprivation every day how to cope with limited resources - what: choose among different potential bundles of goods - how: select from different techniques of production - for whom: in the end who will consume the goods keypoint: the essence of economics is to acknowledge the reality of scarcity and then figure out how to organize society in a way that produces the most efficient use of resources (2) efficiency most effective use of a society's resources in satisfying people's wants and needs complicated because there is almost always a very thorny tradeoff between what is efficient and what is "fair" efficiency vs equity grappling with the tradeoff between efficiency and equity is one of the most difficult tasks of economists and the political and business leaders they serve