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Topic 1: Scarcity, Opportunity Costs, and Basic Economic Questions

by: Ashley Notetaker

Topic 1: Scarcity, Opportunity Costs, and Basic Economic Questions 165

Marketplace > Missouri State University > Economcs > 165 > Topic 1 Scarcity Opportunity Costs and Basic Economic Questions
Ashley Notetaker
Principles of Microeconomics
Reed Olsen

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Studies show that economics is the second hardest course, behind math. Don't forget to study the fundamentals. Here are the notes for Topic One!
Principles of Microeconomics
Reed Olsen
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This 3 page Bundle was uploaded by Ashley Notetaker on Monday September 14, 2015. The Bundle belongs to 165 at Missouri State University taught by Reed Olsen in Summer 2015. Since its upload, it has received 67 views. For similar materials see Principles of Microeconomics in Economcs at Missouri State University.

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Date Created: 09/14/15
Topic 1 Notes 3 Methods of Analysis 1 Verbally 2 Graphically 3 Mathematically Scarcity Human wants exceed the resources available that are necessary to produce the goods used to satisfy those wants Why we make choices Scarcity is based off of wants because needs cannot be defined Do we need healthcare Scarce A good is considered scare if the amount people demand of the good quantity demand exceeds the amount that is supplied quantity supplied when the price of the good is zero prrice 0 then demand is greater than supply Free A good is considered free if the quantity demanded equals or is less than the quantity supplied when the price of the good is zero If price 0 then demand 5 supply If a positive market price exists then the good MUST be scarce However if the market price is zero then the good MUST be free Opportunity Cost Equals the value of the nextbest forgone alternative whenever a choice is made Implicit price Not an outofpocket dollar amount but the value of forgone alternatives Can be an Inconvenience AbsoluteMonetary price Actual dollar price paid for a good Relative Price Measures the price of the goodresource relative to prices of other goodsresource Ex Apple 1 Oranges 2 PAPO 12 These are the prices that effect decision making Relative price can remain unchanged even if monetary price changes Relative price can change even if monetary price stays the same EcNet Value Total benefit society reaps from all the goods currently being produced minus the total cost of producing those goods Mutually beneficial At least one party is benefited and no party is damaged Resources Technology and Output Increase in technology Increase in output with the same resources Increase in technology Same output with less resources 4 Types of Resources Labor Return of wages before resources are paid Natural Resources land Cannot be the result of a production resource Return of rent Capital Is a result of production and a productive resource Return of interest rates PWN Entrepreneurship Profit after resources are paid Basic Economic ChoicesQuestions What goods will be produced Society decides what goods they wish to produce How will resources be used in the production process Producing output w fewest resources or the lowest cost Who will receive the goods Focuses on issues of taxation and subsidies When will production occur Timing can be determined by nature such as storage and wastage of perishables 3 Types of Efficiency 1 Economic Efficiency Achieved when society as a whole produces the output of goods such that society s highest net value is obtained Both Technologically and Allocative 2 Technological Efficiency The fewest resources being used to produce output Or the maximum possible output is produced with those resources Technologically inefficient is when this doesn t occur 3 Allocative Efficiency All possible mutually beneficial exchanges have taken place How to allocate our resources to max society s welfare Allocative inefficiency is when any potentially mutually beneficial exchange does not occur Scientific Method 1 Initial identification of real world problem to study 2 Build a model of the real world problem being studied A Make assumptions to mimic real world conditions Realistic and Simplified B Make a model based on the assumptions made that describes the phenomenon being studied C Use the model to get predictions about how the real world behaves 3 Test the model Use predictions from step 2 gather real world data then compare actual outcomes to predictions lf predictions are accurate then the scientific model is successful If not accurate must start over again with step 1 2 Types of Analysis 1 Positive EconomicsStatements About how the world actually exists or behaves factual objective 2 Normative EconomicsStatements About how the world should exist or behave opinions subjective Best way to distinguish between the two if statement can be tested imperially then it is positive even if the statement is false Normative are opinions and cannot be tested


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