Chapter 1 : Thinking like an
economist
Type Summary
Date
Materials
Reviewed
Revision
Micro - vs macro-economics
Micro - the study of the smaller components of the economy, like the individual firm or
consumer
Macro - Studies the economy as a whole referring to factors such as GDP and inflation
Scarcity problem
Refers to the problem of limited time and resources and the unlimited wants that can’t
be satisfied with the limited resources
Cost-Benefit analysis
This is when you will only decide to make the decision ie. take the action if you benefit
from it more than the costs implicated
When there is no direct monetary value - “ hypothetical monetary value”
reservation price of activity
represents the max “price” an individual is willing to pay
Pitfalls in decision making
Chapter 1 : Thinking like an economist 1
, Ignoring sunk cost
The costs that cant be recovered eg. marketing campaign expense
Implicit costs (opportunity costs)
Refers to the best other alternative that must be sacrificed for you to do the
particular activity
Marginal costs - The increase in cost resulting in one additional unit of input /
consumption
Marginal benefit - Increase in total benefit as a result of an additional unit of
consumption
The invisible hand
Adam smith stated that the pursuit of self interest would benefit the economy as a whole
Positive vs normative
Positive statement - It is a statement or question based on facts → tries to answer
what would happen if policies change etc
Normative statements - It is a statement or question based on opinion → tries to
answer which policies etc. will lead to to the best outcome . Value based - therefor
difficult to predict
Homo Economicus ( “Economic man “)
Refers to a person living on the following principals
1. Pursues a life of self-interest → cares only about material cost and benefit
2. Unable to identify issues around them in society
3. Life of social isolation → to a degree
Chapter 1 : Thinking like an economist 2
, Economic naturalist
Person that sees all aspects of life as they would be perceived economically
Other concepts
Economic systems aim to answer
1. What are we going to produce ?
a. Capital goods or consumer goods ?
2. How are we going to produce ?
a. Capital vs labour ?
3. Who is producing it ?
3 Economic systems
1. Capitalism
2. Socialism
3. Mixed economy
Derivatives
Normal equation Derived equation
y=k y′ = 0
Normal equation Derived equation
y = kn y′ = nkn−1
Chapter 1 : Thinking like an economist 3
, Normal equation Derived equation
y = kxn y′ = knxn−1
Normal equation Derived equation
y = f(x) ± g(x) y′ = f ′ (x) ± g′ (x)
Normal equation Derived equation
y = f(x) ∗ g(x) y′ (x) = f ′ (x) ∗ g(x) + f(x) ∗ g′ (x)
Normal equation Derived equation
f(x) f ′ (x) ∗ g(x) − f(x) ∗ g′ (x)
y= y′ =
g(x) [g(x)]2
Normal equation Derived equation
y = ex y′ = ex
Normal equation Derived equation
y = ln(x) 1
y′ =
x
Normal equation Derived equation
y = f(x)n y′ = n[f(x)n−1 ∗ f ′ (x)]
Chapter 1 : Thinking like an economist 4
economist
Type Summary
Date
Materials
Reviewed
Revision
Micro - vs macro-economics
Micro - the study of the smaller components of the economy, like the individual firm or
consumer
Macro - Studies the economy as a whole referring to factors such as GDP and inflation
Scarcity problem
Refers to the problem of limited time and resources and the unlimited wants that can’t
be satisfied with the limited resources
Cost-Benefit analysis
This is when you will only decide to make the decision ie. take the action if you benefit
from it more than the costs implicated
When there is no direct monetary value - “ hypothetical monetary value”
reservation price of activity
represents the max “price” an individual is willing to pay
Pitfalls in decision making
Chapter 1 : Thinking like an economist 1
, Ignoring sunk cost
The costs that cant be recovered eg. marketing campaign expense
Implicit costs (opportunity costs)
Refers to the best other alternative that must be sacrificed for you to do the
particular activity
Marginal costs - The increase in cost resulting in one additional unit of input /
consumption
Marginal benefit - Increase in total benefit as a result of an additional unit of
consumption
The invisible hand
Adam smith stated that the pursuit of self interest would benefit the economy as a whole
Positive vs normative
Positive statement - It is a statement or question based on facts → tries to answer
what would happen if policies change etc
Normative statements - It is a statement or question based on opinion → tries to
answer which policies etc. will lead to to the best outcome . Value based - therefor
difficult to predict
Homo Economicus ( “Economic man “)
Refers to a person living on the following principals
1. Pursues a life of self-interest → cares only about material cost and benefit
2. Unable to identify issues around them in society
3. Life of social isolation → to a degree
Chapter 1 : Thinking like an economist 2
, Economic naturalist
Person that sees all aspects of life as they would be perceived economically
Other concepts
Economic systems aim to answer
1. What are we going to produce ?
a. Capital goods or consumer goods ?
2. How are we going to produce ?
a. Capital vs labour ?
3. Who is producing it ?
3 Economic systems
1. Capitalism
2. Socialism
3. Mixed economy
Derivatives
Normal equation Derived equation
y=k y′ = 0
Normal equation Derived equation
y = kn y′ = nkn−1
Chapter 1 : Thinking like an economist 3
, Normal equation Derived equation
y = kxn y′ = knxn−1
Normal equation Derived equation
y = f(x) ± g(x) y′ = f ′ (x) ± g′ (x)
Normal equation Derived equation
y = f(x) ∗ g(x) y′ (x) = f ′ (x) ∗ g(x) + f(x) ∗ g′ (x)
Normal equation Derived equation
f(x) f ′ (x) ∗ g(x) − f(x) ∗ g′ (x)
y= y′ =
g(x) [g(x)]2
Normal equation Derived equation
y = ex y′ = ex
Normal equation Derived equation
y = ln(x) 1
y′ =
x
Normal equation Derived equation
y = f(x)n y′ = n[f(x)n−1 ∗ f ′ (x)]
Chapter 1 : Thinking like an economist 4
