ECON 110, Week 1 Notes
ECON 110, Week 1 Notes Econ 110
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This 4 page Class Notes was uploaded by IntrovPlottin on Friday January 8, 2016. The Class Notes belongs to Econ 110 at Brigham Young University taught by Dr. Pope in Fall 2015. Since its upload, it has received 35 views. For similar materials see Econ Principles & Problems in Economcs at Brigham Young University.
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Date Created: 01/08/16
ECON110 Notes for Week 1 Scarcity: limited nature of society’s resources There’s always a trade-off/cost to a resource used Non-scarce resources may be limited but plentiful o When scarce resources become non-issues. Then people can worry about other scarce resources (i.e. labor, then national security) Economics: study of how society manages scarce resources [to meet human needs and objectives] (Mankiw) Includes time, labor, raw materials, capital “Science that deals with…” “The academic discipline…” Study of interactions of buyers and sellers to determine price of a good Study how people make decisions (i.e. work, buy, save, invest) ANTHROPOECENTRIC “There ain’t such thing as a free lunch” Analyze forces and trends that affect economy as a whole Dismal science Ten Principles of Economics (Mankiw) “People face trade-offs” o “To get something that we like, we usually have to give up something else that we also like” (Mankiw). o i.e. limited x. Decision a (national defense) OR Decision b (standard of living)? o Efficiency: maximum benefits from scarce resources (Mankiw) Allocation of resources emphasizes on efficiency; how to get the most value with the least resources One must assume that all people are of equal value Then, eliminate the least-efficient factors of problem to maximize value o Equality: equal economic distribution among society (Mankiw) o Balance of equality/efficiency best demonstrated via welfare and income tax programs “The cost of something is what you give up to get it” o Opportunity cost: whatever you give up to get an item “Rational people think at the margin” o Rational people: people who do their best to achieve objectives (Mankiw) o Marginal change: a small, incremental adjustment to a plan of action (Mankiw) o Marginal cost should be compared to marginal benefit only (i.e. $7 value vs. 10-min. phone call at $0.50/min (Mankiw).) “People respond to incentives” o Incentive: motivation for one to act (Mankiw) o Incentives can factor whether people purchase (cheap vs. expensive) or producers make (high price vs. low demand) “Trade can make everyone better off” o Economic competition is good—each party tries to beat others for the lowest-price, highest-earning good available, thus making more revenue o “Trade allows each person to specialize in the activities she does best —by trading with others, people can buy a greater variety of goods and services at a lower cost” (Mankiw). “Markets are usually a good way to organize economic activity” o Market economy: economy that allocates resources through decentralized decisions of many firms and households interacting with markets for goods and services (Mankiw). o “buyers look at the price when determining how much to demand, and sellers look at price when deciding how much to supply” (Mankiw). o Price = maximization of well-being of society = value of goods to society + cost of society to produce good (Mankiw) o Taxes can potentially harm economic growth with unnatural prices of goods “Governments can sometimes improve market incomes o Regulations and institutions help economies grow o Property rights: ability of individual to own and exercise control over scarce resources (Mankiw) o Market failure: a situation in which a market left on its own fails to allocate resources efficiently (Mankiw) o Externality: impact of one’s actions on the well-being of bystanders (Mankiw o Both market failure and externalities are considered efficiency factors o Market power: ability of a single economic person/firm to unduly influence market prices (Mankiw) Monopolies o “a market economy rewards people according to their ability to produce things that other people are willing to pay for” (Mankiw). “A country’s standard of living depends on its ability to produce goods and services” o Productivity: quantity of goods and services produced from each unit of labor input (Mankiw) o Productivity has a direct correlation to a nation’s standard of living o Higher productivity (via education, better technology/tools), then higher living standards for the laborer (and the nation) “Prices rise when government prints too much money o Inflation: increase in overall level of prices (Mankiw) “Society faces a short-run trade-off between inflation and unemployment” o Inflation correlates with less unemployment due to stimulating spending and generation of product demand Business cycle: fluctuations in economic activity like employment and production (Mankiw) Models are used to understand big-picture ideas (representative) They strip away what you don’t want to see and leave what is most essential Models can be useful for only a limited amount of data (x-/y-axis limited) Models are used to gather and organize data as best as possible o Nonetheless, are imperfect and not extremely accurate Types of economic models Poisson Regression Model (Probability distribution model) ((−λ)r o Prob(Y=r)=e λ /r! o λ = mean and variance Diff&Diff Models Consumer behavior models Producer behavior models Supply and demand models Perfect competition models Monopoly models Macroeconomic models (descriptive analysis) Works Cited Mankiw, N. Gregory. Principles of Economics. 7th ed. Stamford: Cengage Learning, 2012. Print.
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