Basic Economic Concepts

Economics 经济学 begins with scarcity 稀缺性: people's wants are unlimited, but the resources 资源 to satisfy them are limited. The resources – the factors of production 生产要素 – are land, labor 劳动, capital 资本, and entrepreneurship 企业家才能. Scarcity forces every society to choose what, how, and for whom to produce, and it makes trade-offs 权衡 unavoidable.

Every choice has an opportunity cost 机会成本 – the value of the next-best alternative given up. The production possibilities curve (PPC) 生产可能性曲线 shows the maximum combinations of two goods an economy can make when resources are fully and efficiently used.

A straight PPC means constant opportunity cost; a bowed one means increasing cost

• Points on the curve are efficient; inside, inefficient (unemployed resources); outside, unattainable.
• The downward slope shows opportunity cost; a bowed-out curve shows increasing opportunity cost.
• More resources or better technology cause economic growth 经济增长, shifting the PPC outward.

A production possibilities curve; investing in capital goods shifts it outward

A producer has an absolute advantage 绝对优势 in a good if it can make more of it. It has a comparative advantage 比较优势 if it has the lower opportunity cost. Nations should specialize in their comparative-advantage goods and trade – both gain if the terms of trade 贸易条件 lie between the two opportunity costs. Trade lets a country consume beyond its own PPC.

Worked example. Country A can make $10$ wheat or $5$ cloth per day; Country B can make $8$ wheat or $8$ cloth. For A, one cloth costs $\tfrac{10}{5}=2$ wheat; for B it costs $\tfrac{8}{8}=1$ wheat. B's opportunity cost of cloth is lower, so B specializes in cloth. Checking wheat: A gives up $0.5$ cloth per wheat and B gives up $1$, so A specializes in wheat. Trading at any rate between the two costs, both consume beyond their own PPC.

Comparative advantage comes from differently-sloped production possibilities curves

Demand 需求 relates price to the quantity buyers will buy. The law of demand 需求定律 makes the curve slope downward. A change in the good's own price is a movement along the curve; the determinants (income, tastes, prices of substitutes 替代品 and complements 互补品, number of buyers, expectations) shift the whole curve.

The demand curve slopes down; income, tastes, and related prices shift it

The law of demand slopes the curve downward; a determinant shifts the whole curve

Supply 供给 relates price to the quantity sellers will offer; the law of supply 供给定律 makes it slope upward. Its determinants – input prices, technology, taxes and subsidies 补贴, number of sellers, expectations – shift the curve, while the good's own price moves along it.

The supply curve slopes up; costs, technology, tax, and subsidy shift it

Equilibrium 均衡 is where supply meets demand, clearing the market. Above the equilibrium price a surplus 过剩 pushes price down; below it a shortage 短缺 pushes price up. When a determinant shifts one curve, price and quantity move predictably; when both shift, one of them is indeterminate.

Worked example. A new technology lowers producers' costs, shifting supply right. Along the unchanged demand curve, the equilibrium price falls and the equilibrium quantity rises. If instead a rise in incomes shifts demand right at the same time, quantity clearly rises but the effect on price depends on which shift is larger – the "both shift" indeterminate case.

Equilibrium price and quantity where demand meets supply

Exam skill: macro builds on these micro tools – you must draw and shift supply-and-demand and PPC graphs correctly, because the same shift logic drives the aggregate (whole-economy) models later in the course.

Market equilibrium sits where supply meets demand; away from it lie surplus and shortage

• Opportunity cost is what you give up — read it off a PPC as the slope; a bowed-out PPC shows increasing opportunity cost.
• Comparative advantage (lower opportunity cost), not absolute advantage, decides who should specialise and trade.
• Points inside the PPC are inefficient, outside unattainable; more resources/technology shift it out (growth).
• Distinguish a movement along a demand/supply curve (own price) from a shift (a determinant).
• These micro tools drive the aggregate models later — draw and shift the correct curve in the correct direction.