Principles of Microeconomics 2e
Kindle Highlights
Economics is the study of how humans make decisions in the face of scarcity.
The division and specialization of labor has been a force against the problem of scarcity.
Scarcity means that human wants for goods, services and resources exceed what is available.
For more information about how to use FRED, see the variety of videos (https://openstax.org/l/FRED_intro) on YouTube starting with this introduction.
specialization allows businesses to take advantage of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines.
Smith introduces the concept of division of labor, which means that the way one produces a good or service is divided into a number of tasks that different workers perform, instead of all the tasks being done by the same person.
Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses. Macroeconomics looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports.
In a market economy, decision-making is decentralized. Market economies are based on private enterprise: the private individuals or groups of private individuals own and operate the means of production (resources and businesses). Businesses supply goods and services based on demand. (In a command economy, by contrast, the government owns resources and businesses.) Supply of goods and services depends on what the demands. A person’s income is based on his or her ability to convert resources (especially labor) into something that society values. The more society values the person’s output, the higher the income (think Lady Gaga or LeBron James). In this scenario, market forces, not governments, determine economic decisions.
Data is very important in economics because it describes and measures the issues and problems that economics seek to understand. A variety of government agencies publish economic and social data. For this course, we will generally use data from the St. Louis Federal Reserve Bank’s FRED database. FRED is very user friendly. It allows you to display data in tables or charges, and you can easily download it into spreadsheet form if you want to use the data for other purposes. The FRED website (https://openstax.org/l/FRED/) includes data on nearly 400,000 domestic and international variables over time, in the following broad categories: •Money, Banking & Finance •Population, Employment, & Labor Markets (including Income Distribution) •National Accounts (Gross Domestic Product & its components), Flow of Funds, and International Accounts •Production & Business Activity (including Business Cycles) •Prices & Inflation (including the Consumer Price Index, the Producer Price Index, and the Employment Cost Index) •International Data from other nations •U.S. Regional Data •Academic Data (including Penn World Tables & NBER Macrohistory database)