1. Definition of Economics Economics is the social science that studies the choices that individuals, businesses, governments and entire societies make when they cope with scarcity and the incentives that influence and reconcile those choices. Economics is divided into microeconomics and macroeconomics:

Microeconomics is the study of the choices that individuals and businesses make, the

way these choices interact in markets, and the influence of governments.

Macroeconomics is the study of the performance of the national economy and the

global economy.

2. Two Big Economic Question 1. How do choices wind up determining what, how, and for whom goods and services are produced?

Goods and services are the objects that people value and produce to satisfy human wants. Goods and services are produced using the productive resources called factors of production. These are land (the “gifts of nature”, natural resources), labor (the work time and work effort people devote to production), capital (the tools, instruments, machines, buildings, and other constructions now used to produce goods and services), and entrepreneurship (the human resource that organizes labor, land, and capital).

2. When is the pursuit of self-interest in the social interest?

People make choices they are think are best for them, that is, choices in their self-interest.

Choices that are the best for society as a whole are said to be in the social interest.

3. Economic way of Thinking The economic way of thinking places scarcity and its implication, choice, at center stage. There are 6 key ideas:

1. A choice is a trade-off

The answers to the “What goods and services will be produced?”, “How will goods and services get produced?”, and “For whom are goods and services produced?” all involve tradeoffs. “What?”-Tradeoffs arise when people choose how to spend their incomes, when governments choose how to spend their tax revenues, and when businesses choose what to produce. “How?”-Tradeoffs arise when businesses choose among alternative production technologies. “For whom?”-Tradeoffs arise when choices change the distribution of buying power across individuals.

2. People make rational choices by comparing benefits and costs

3. Benefit is what you gain from something

4. Cost is what you must give up to get something

5. Most choices are “how-much” choices made at the margin

6. Choices respond to incentives

4. Opportunity Cost The opportunity cost of an activity is the highest valued alternative that we give up to get something. For example, the opportunity costs of attending college include goods and services forgone from paying for tuition and textbooks, and the goods and services forgone because the student does not have the income from a full-time job.

5. Economics as a social science and Policy Tool Economics as a social science have two types of statement: positive –“what is” which can be tested by checking it against facts and normative – “what ought to be” which cannot be tested. An economic model describes some aspect of the economic world that includes only those features needed for the purpose at hand. Testing an economic model can be difficult, so economists use the following to copy with the problem:

Natural experiment: A situation that arises in the ordinary course of economic life in which the one factor of interest is different and other things are equal or similar.

Statistical Investigation: A statistical investigation might look for the correlation of two variables, to see if there is some tendency for the two variables to move in a predictable and related way (e.g. cigarette smoking and lung cancer).

Economic Experiment: Putting people in a decision-making situation and varying the

influence of one factor at a time to see how they respond.

6) A production possibility frontier (PPF) is a curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst using all of the available factor resources efficiently. . граница производственных возможностей (линия на графике, отделяющая множество наборов двух благ, которые может произвести хозяйство, организация или индивид из имеющихся ресурсов, от наборов, которые произвести невозможно; на осях отложены количества двух товаров)

PPFs are normally drawn as bulging upwards ("concave") from the origin but can also be represented as bulging downward or linear (straight), depending on a number of factors. A PPF can be used to represent a number of economic concepts, such as scarcity of resources (i.e., thefundamental economic problem all societies face), opportunity cost (or marginal rate of transformation), productive efficiency, allocative efficiency, and economies of scale. In addition, an outward shift of the PPF results from growth of the availability of inputs such as physical capital or labour, or technological progress in our knowledge of how to transform inputs into outputs.

7)Production Efficiancy

An economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product. This will happen when an economy is operating along its production possibility frontier. The ability to produce a good using the fewest resources possible. Efficient production is achieved when a product is created at its lowest average total cost.

Production efficiency measures whether the economy is producing as much as possible without wasting precious resources. Theoretically, production efficiency will include all of the points along the production possibility frontier, but this is difficult to measure in practice. Because resources are limited, being able to make products efficiently allows for higher levels of production. If the economy can't make more of a good without sacrificing the production of another, then a maximum level of production has been reached.

Эффективность производства - отношение между затратами ограниченных ресурсов и произведенным в результате их использования объемом товаров или услуг.  Эффективность производства - производство продукта определенной стоимости с наименьшими издержками.

• 8) Marginal cost is the opportunity cost of producing one more unit of a good.

The slope of the production–possibility frontier (PPF) at any given point is called the marginal rate of transformation (MRT). The slope defines the rate at which production of one good can be redirected (by reallocation of productive resources) into production of the other. 

• The marginal benefit of a good or services is the benefit received from consuming one more unit of it.

• The principle of decreasing marginal benefits is why the marginal benefit curve in the figure above slopes downward.

9) A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established.

For a market to be competitive, there must be more than a single buyer or seller.

 Рrice is the quantity of payment or compensation given by one party to another in return for goods or services.

• The price of a good or service is the number of money that must be given up for it. The ratio of one (money) price to another is called a relative price., A relative price is an opportunity cost. The theory of demand and supply determines relative prices and so when we use the word “price” we mean “relative price.”

10) Demand

• The price of a good or service affects the quantity people plan to buy. The quantity demanded of a good or service is the amount that consumers plan to buy during a given time period at a particular price.

• The law of demand states that other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the greater the quantity demanded. The law of demand occurs for two reasons:

• Substitution Effect: When the relative price of good changes, the opportunity cost of the good changes. An increase in the price increases the opportunity cost of buying the good and people respond by buying less of the good and buying more of its substitutes.

• Income Effect: A change the price of a good changes the amount that a person can afford to buy. When the price of a good rises, people cannot afford to buy the same quantities that they purchased before, so the quantities bought of some goods and services must decrease. Normally the good whose price rises is one of the goods for which less is purchased.