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| | *Allow someone to use your land in exchange for rent. | | *Allow someone to use your land in exchange for rent. |
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| − | *Start a new business to earn profits. But watch out here: 9 out of 10 new businesses fail (many because the owners do not understand -- or do not follow -- basic Economic rules). | + | *Start a new business to earn profits. But watch out here: 9 out of 10 new businesses fail (often because the owners do not understand -- or do not follow -- basic Economic rules). |
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| | Sounds simple enough, right? Look around you, and you’ll see people earning money each of the four above ways. Mostly, you’ll see the first way: get a job and earn some wages. That entails the least risk and is the easiest for most people. Adults and teenagers often follow the path of least resistance, and often imitate others. In economics, that means getting a job to work for a company. It’s great until the economy goes through a downturn and you get "laid off" (fired), or the job becomes tiresome and tedious, or the boss fires you because he did not like something you said. Then it’s not so great anymore. But as a teenager you can earn money from someone else while you are learning how business works. You may need experience and savings before you make money the other three ways. | | Sounds simple enough, right? Look around you, and you’ll see people earning money each of the four above ways. Mostly, you’ll see the first way: get a job and earn some wages. That entails the least risk and is the easiest for most people. Adults and teenagers often follow the path of least resistance, and often imitate others. In economics, that means getting a job to work for a company. It’s great until the economy goes through a downturn and you get "laid off" (fired), or the job becomes tiresome and tedious, or the boss fires you because he did not like something you said. Then it’s not so great anymore. But as a teenager you can earn money from someone else while you are learning how business works. You may need experience and savings before you make money the other three ways. |
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| | The opposite of "compounded" interest is "simple" interest. In the above example, the total amount due the second year is $1000 plus 5% of $1000 (for the first year) plus another 5% of only the original $1000 (for the second year), for a total of $1100. Notice how the total amount under compounded interest is always larger than the total amount using simple interest. | | The opposite of "compounded" interest is "simple" interest. In the above example, the total amount due the second year is $1000 plus 5% of $1000 (for the first year) plus another 5% of only the original $1000 (for the second year), for a total of $1100. Notice how the total amount under compounded interest is always larger than the total amount using simple interest. |
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| − | If you are saving money, then you want as much compounding of the interest as possible. Ideally, you would like the interest on the money you save to be "compounded daily," such that each day's interest is on a total amount that includes the interest that should have accumulated for the prior day too. | + | If you are saving money, then you want as much compounding of the interest as possible. Ideally, you would like the interest on the money you save to be "compounded daily," such that the interest earned each day includes interest earned on the interest that was earned the day before. |
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| | Sometimes people repay money all at once, rather than with interest payments. Suppose I gave you $1000 and you promised to pay me back $1500 in 10 years. Then economists ask, what is the “rate of return” or “yield” on that investment? | | Sometimes people repay money all at once, rather than with interest payments. Suppose I gave you $1000 and you promised to pay me back $1500 in 10 years. Then economists ask, what is the “rate of return” or “yield” on that investment? |
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| | ''Example'': The price charged by a perfectly competitive firm in the long run or the short run equals marginal cost, because that is always true when there is perfect competition. But the relation between that price and the firm's overall costs depends on whether it is in the long run or the short run. In the long run, the firm's costs are minimized, and thus the price will be equal to the firm's average total cost for a perfectly competitive firm. This is because the perfect competition drives the price down to its lowest possible level: average total cost. (On an exam question, assume that costs are "economic costs" that include everything from the owner's salary to the investors' profits to the opportunity costs.) | | ''Example'': The price charged by a perfectly competitive firm in the long run or the short run equals marginal cost, because that is always true when there is perfect competition. But the relation between that price and the firm's overall costs depends on whether it is in the long run or the short run. In the long run, the firm's costs are minimized, and thus the price will be equal to the firm's average total cost for a perfectly competitive firm. This is because the perfect competition drives the price down to its lowest possible level: average total cost. (On an exam question, assume that costs are "economic costs" that include everything from the owner's salary to the investors' profits to the opportunity costs.) |
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| − | A question probing the difference between the short and long run might ask what the basic difference is. We learned that in the long run all costs are variable. What about the short run? '''In the short run, some costs of a firm are fixed and unchangeable'''. For example, the night before the March for Life bus trip to D.C., decisions about the bus must be made on a short-run basis. It is too late then to change the number of buses. The cost of the buses is fixed, not variable, in the short run. | + | A question probing the difference between the short and long run might ask what the basic difference is. We earned that in the long run all costs are variable. What about the short run? '''In the short run, some costs of a firm are fixed and unchangeable'''. For example, the night before the March for Life bus trip to D.C., decisions about the buses must be made in the short run. It is too late then to change the number of buses. The cost of the buses is fixed, not variable, in the short run. |
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| | == Review: Monopolistic Competition == | | == Review: Monopolistic Competition == |