Week 1 and 2 - Principles of Microeconomics Lecture Notes
Week 1 and 2 - Principles of Microeconomics Lecture Notes ECON:1100:0AAA
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This 8 page Bundle was uploaded by Kelsy Lartius on Tuesday February 3, 2015. The Bundle belongs to ECON:1100:0AAA at University of Iowa taught by Stacey Brook in Spring2015. Since its upload, it has received 151 views. For similar materials see Principles of Microeconomics in Economcs at University of Iowa.
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Date Created: 02/03/15
Principles of Microeconomics Lecture Notes 123 Lecture Notes capital resources 2 all of the tools used to produce the good or service not money Production Possibilities Frontier PPF 6quot all corn 0 soybeans corn a soybeans 0 corn J H soybeans corn L PPF W M opportunity costs this scenario is not realistic but we assume in order to simplify it soybeans Implications or Conclusions 1 scarcity 2 choice 3 opportunity costs 4 increasing opportunity costs 1 scarcity PPF 2 Choice PPF be ond the line corn is got ossible com can produce SB soybeans l3 A and CB corn can39t produce A but may be able to CB a B consume 39 I 39 soybeans SB soybeans 3 opportunity cost of making a choice corn To produce more corn point C the opportunity cost is the decrease in the amount of soybeans that is possible to produce SB Sc SC SB soybeans 4 increasing opportunity cost P corn 1 By reducmg corn production by equal amounts results in smaller increases in soybean production SE SD gt SF SE 4 ITI q Relaxing the assumption of fixed technologyresources IPTechnology Ag prod corn w Tcorn 4 soybeans increased technology soybeans T Technology for only corn corn seeds corn Increased tech for corn only soybeans Relaxing the assumption that resources are produced efficiently ie inefficient production ef ciency 2 on the line opp cost of inefficiency com I scarcity 2 beyond the line 1 w 0939 39 CG G39 inefficiency under the line 39 or 39 2 only soybeans SGquot Se 3 some combo Cam CG Sew Se Principles of Microeconomics Lecture Notes 126 Lecture Notes Absolute advantage trade can be beneficial if it is voluntary Farmer39s PPF constant opportunity costs Suppose 8 oz meat r 0 oz meat 0 oz potatoes 32 oz potatoes What is the farmer39s opportunity cost 1 oz meat 4 oz potatoes 1 oz potatoes 2 14 oz meat yabx 8 m814p 32IO Rancher39s PPF constant opportunity costs Suppose 24 oz of meat 0 oz of meat 0 oz of potatoes or 8 oz of potatoes m What is the rancher39s opportunity cost 1 oz meat 2 13 oz potatoes 24 1 oz potatoes 2 3 oz meat y a bx m 24 3p 8 9 Absolute Advantage where one producer farmer is more productive in producing a good potatoes and another producer rancher is more productive in producing the other good meat conclude farmer has an absolute advantage in potatoes Le 32 02 vs 8 oz rancher has an absolute advantage in meat Le 24 02 vs 8 oz Suppose without trade production consumption 39 under specialization farmer production absolute advantaqe meat 4 0 potatoes 16 32 under specialization rancher production absolute advantaqe meat 12 24 potatoes 4 0 total production production gains meat 16 24 8 Suppose they agree to trade and the terms of trade are1ozm1ozp trade 10 oz m 10 oz p specialization I speCIallzatlon Wlth and trade m w W Rig original meat 0 10 22 6 consumption potatoes 32 3910 above subtracted rancher from consumption rm 24 10 14 2 after trade potatoes 0 10 10 6 consumption 8 meat 12 potatoes Principles of Microeconomics Lecture Notes 128 Lecture Notes if there are constant opportunity costs you always completely specialize in the real world opportunity costs are increasing Comparative Advantage Farmer Rancher m m 24 8 32 p 48 p Opportunity COSti farmer has a Opportunity cost rancher has a 1 oz p 14 oz m comlgarative 1 oz p 12 oz m comparative 1 OZ m 4 OZ p advantage in 1 OZ m 2 OZ p advantage In potatoes ie m re 2 lt 4 14 lt 12 Comparative Advantaqe occurs when one producer is able to produce a good at a lower opportunity cost than another producer f Suppose Terms of trade are 1 oz p 13 oz m 1 oz m 3 oz p Farmer Rancher Potatoes 14 oz m 13 12 oz m Meat 4 oz p 3 2 oz p Changes in the terms of trade As the terms of trade move closer to the farmer39s opportunity cost ie 515 gt 516 the farmer gains less than before the change in the terms of trade and the rancher gains more than before the change in the terms of trade Principles of Microeconomics Lecture Notes 130 Lecture Notes market geographic market where Demand quotconsumer behaviorquot Law of Demand when prices increase consumers buy less when prices decrease consumers buy more new Pgtlo Why does the demand curve slope downwards 1 income effect income is held constant 2 substitution effect 3 diminishing marginal utility Change in Quantity Demanded Ls is a movement along the demand curve Only thing that allows us to move along an existing demand curve is that there39s a change in the price of that good Change in Demand 1 Number of customers increase in of customers gt increase in demand 2 Change in consumer preferences P a preferences ll f pref rences D D I Q
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