Summary Chapter 1 Principles of Business and Economics 1
- When self-interest aligns with the broader public interest, we get good outcomes, but when
self-interest and the social interest are at odds, we get bad outcomes.
- Thinking on the margin is making choices by thinking in terms of marginal benefits and
marginal costs, the benefits and costs of a little bit more.
- Through the division of knowledge, the sum total of knowledge increases and in this way so
does productivity.
- When people or nations specialize in goods in which they have a low opportunity cost, they
can trade to mutual advantage.
- When people have more money, they spend it, and without an increase in the supply of
goods, prices must rise.
Incentives rewards and penalties that motivate behavior.
Scarce when there isn’t enough of a resource to satisfy all your wants.
Great economic problem how to arrange our scarce resources to satisfy as many of our wants as
possible.
Opportunity cost the value of the opportunities lost when making a choice.
Inflation an increase in the general level of prices.
Summary Chapter 2 Principles of business and economics 1
- Trade creates value by moving goods form people who value them less to people who value
them more. So trade makes people with different preferences better off.
- People will specialize in the production of a single good only when they are confident that
they will be able to trade that good for many other goods that they want and need.
- Knowledge increases productivity so specialization increase total output.
- A country has an absolute advantage in production if it can produce the same good using
fewer inputs than another country.
Absolute advantage the ability to produce the same good using fewer inputs than another
producer.
Production possibilities frontier shows all the combinations of goods that a country can produce
given its productivity and supply of inputs.
Comparative advantage a country has this in producing goods for which it has the lower
opportunity cost.
, Summary Chapter 7 Principles of Business and Economics 1
- To estimate the value of oil in different uses, the central planner would have to gather
information about all the uses of oil and all of the substitutes for oil in each use.
- The central planning approach failed because of problems of information and incentives.
- In a free market, the price of a good is equal to the value of the good in its next highest-
value use.
- Prices are incentives, prices are signals and prices are predictions.
- Price signals and the accompanying profits and losses tell entrepreneurs what areas of the
economy consumers want expanded and what areas they want contracted.
The great economic problem to arrange our scarce resources to satisfy as many of our wants as
possible.
Speculation the attempt to profit from future price changes.
Futures standardized contracts to buy or sell specified quantities of a commodity or financial
instrument at a specified price with delivery set at a specified time in the future.
Prediction markets a speculative market designed so that prices can be interpreted as
probabilities and used to make predictions.
Summary Chapter 11 Principles of Business and Economics 1
- You can’t sell any products above the market price and you can sell all your product at the
market price. Thus to maximize profit, you sell at the market price.
- A perfectly elastic demand curve for firm output is a reasonable approximation when the
product being sold is similar across different firms and there are many buyers and sellers,
each small relative to the total market.
- Even when there aren’t many sellers, there are sometimes many potential sellers so a
perfectly elastic demand curve can be a reasonable assumption even in a market with a few
firms, at least in the long run.
- For maximizing profits you should ignore sunk costs and ignore fixed costs in the short run.
- Fixed costs can’t be changed in the short run and so should be ignored for short-run
decisions, but fixed costs can be changed in the long run so they should be focused on for
long-run decisions.
- Maximizing profits requires taking into account explicit costs and also implicit costs, the
costs of foregone alternatives.
- When calculating economic profit, you should include the opportunity cost.
- Profit = total revenue – total cost.
- Total revenue = price x quantity.
- Total cost = fixed costs + variable costs.
- Marginal Revenue = ∆total revenue : ∆quantity.
- Marginal Cost = ∆total cost : ∆quantity.
- As long as marginal revenue is higher than marginal cost, people want to keep producing.
- The profit maximizing quantity is where MR = MC, so where P = MC.
- Average cost = Total cost : quantity.
- Profit = ((TR : Q) – (TC : Q) x Q Profit = (P – AC) x Q
- When self-interest aligns with the broader public interest, we get good outcomes, but when
self-interest and the social interest are at odds, we get bad outcomes.
- Thinking on the margin is making choices by thinking in terms of marginal benefits and
marginal costs, the benefits and costs of a little bit more.
- Through the division of knowledge, the sum total of knowledge increases and in this way so
does productivity.
- When people or nations specialize in goods in which they have a low opportunity cost, they
can trade to mutual advantage.
- When people have more money, they spend it, and without an increase in the supply of
goods, prices must rise.
Incentives rewards and penalties that motivate behavior.
Scarce when there isn’t enough of a resource to satisfy all your wants.
Great economic problem how to arrange our scarce resources to satisfy as many of our wants as
possible.
Opportunity cost the value of the opportunities lost when making a choice.
Inflation an increase in the general level of prices.
Summary Chapter 2 Principles of business and economics 1
- Trade creates value by moving goods form people who value them less to people who value
them more. So trade makes people with different preferences better off.
- People will specialize in the production of a single good only when they are confident that
they will be able to trade that good for many other goods that they want and need.
- Knowledge increases productivity so specialization increase total output.
- A country has an absolute advantage in production if it can produce the same good using
fewer inputs than another country.
Absolute advantage the ability to produce the same good using fewer inputs than another
producer.
Production possibilities frontier shows all the combinations of goods that a country can produce
given its productivity and supply of inputs.
Comparative advantage a country has this in producing goods for which it has the lower
opportunity cost.
, Summary Chapter 7 Principles of Business and Economics 1
- To estimate the value of oil in different uses, the central planner would have to gather
information about all the uses of oil and all of the substitutes for oil in each use.
- The central planning approach failed because of problems of information and incentives.
- In a free market, the price of a good is equal to the value of the good in its next highest-
value use.
- Prices are incentives, prices are signals and prices are predictions.
- Price signals and the accompanying profits and losses tell entrepreneurs what areas of the
economy consumers want expanded and what areas they want contracted.
The great economic problem to arrange our scarce resources to satisfy as many of our wants as
possible.
Speculation the attempt to profit from future price changes.
Futures standardized contracts to buy or sell specified quantities of a commodity or financial
instrument at a specified price with delivery set at a specified time in the future.
Prediction markets a speculative market designed so that prices can be interpreted as
probabilities and used to make predictions.
Summary Chapter 11 Principles of Business and Economics 1
- You can’t sell any products above the market price and you can sell all your product at the
market price. Thus to maximize profit, you sell at the market price.
- A perfectly elastic demand curve for firm output is a reasonable approximation when the
product being sold is similar across different firms and there are many buyers and sellers,
each small relative to the total market.
- Even when there aren’t many sellers, there are sometimes many potential sellers so a
perfectly elastic demand curve can be a reasonable assumption even in a market with a few
firms, at least in the long run.
- For maximizing profits you should ignore sunk costs and ignore fixed costs in the short run.
- Fixed costs can’t be changed in the short run and so should be ignored for short-run
decisions, but fixed costs can be changed in the long run so they should be focused on for
long-run decisions.
- Maximizing profits requires taking into account explicit costs and also implicit costs, the
costs of foregone alternatives.
- When calculating economic profit, you should include the opportunity cost.
- Profit = total revenue – total cost.
- Total revenue = price x quantity.
- Total cost = fixed costs + variable costs.
- Marginal Revenue = ∆total revenue : ∆quantity.
- Marginal Cost = ∆total cost : ∆quantity.
- As long as marginal revenue is higher than marginal cost, people want to keep producing.
- The profit maximizing quantity is where MR = MC, so where P = MC.
- Average cost = Total cost : quantity.
- Profit = ((TR : Q) – (TC : Q) x Q Profit = (P – AC) x Q
