Notes until Chapter 3
Notes until Chapter 3 Econ 232
Popular in Principles of Economics: Microeconomics
Popular in Economcs
This 4 page Class Notes was uploaded by Amadeo Notetaker on Tuesday January 12, 2016. The Class Notes belongs to Econ 232 at Western Illinois University taught by Devereueawax J E in Spring 2016. Since its upload, it has received 91 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Western Illinois University.
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Date Created: 01/12/16
ECONOMY 232: Microeconomics. Chapter 1. Economics: study of choice under conditions of scarcity. In other words, it is how individuals and societies choose to allocate their scarce (limited) resources to best satisfy their unlimited wants. Scarcity: is the problem of unlimited human wants in a world of limited resources. EVERYONE faces scarcity. Resource Categories 1 Land or Natural Resources: includes anything natural which can be used in production (wind, water, soil, trees, oil, etc.). 2 Labor or Human Resources: includes anything in which men/women contribute to the production process: Physical Labor: physical strength/abilities. Human Capital: creativity, knowledge, education, experience, ENTERPRENEURSHIP, etc. 3 Capital or physical capital: anything manmade that can be used repeatedly in production (buildings, equipment, tools, computers, etc.). A Durable goods: goods that last more than a year. B Nondurable goods: these ones last less than a year. Are considered “rawmaterials” (chalk, paper, etc.). C Financial instruments (money): these are not considered a resource, are only means of exchange (cash, stocks, bonds, etc.). D Final consumer goods: these goods are available for consumption and not production. Thus, they are not considered a resource (food, clothing, etc.). Assumptions about DecisionMaking 1 People face limitations and must make choices. Every choice implies a tradeoff (you must give up something), called “opportunity cost”. Thus, opportunity cost is the highest valued alternative that must be given up to engage in an activity. 2 People are Rational: they use all available information in making a decision. 3 People are selfinterest. 4 People make choices at “the margin”. Marginal means “additional” or “extra”. Marginal Benefit (MB): is a change in benefits from changing the level of an activity by one unit. Marginal Cost (MC): is the change in costs from changing the level of an activity by on unit. An example is whether you watch an extra episode of your TV show instead of studying or not: in this case, the MB would be satisfaction; and the MC would be not getting a good grade on the exam. If MB > MC then increase the level of the activity (watch another episode!) If MB = MC then stop at this level of activity. If MB < MC then decrease the level of the activity. Defining a Market Market: organized “place” where buyers and sellers voluntarily exchange goods and services. Example: market for cars, pizza, etc.) Markets can be defined in terms of: Geographic location. Product characteristics. Time horizon (week, month, year). Evaluating Outcomes. Positive Economics or Analysis: objective description and/or evaluation of an event. You cannot discern the author’s personal viewpoint on the matter. The analysis is written as “factual”, no opinions are expressed. The statement can be tested! Normative Economics or Analysis: analysis based on a value judgement (subjective). It is based on an individual or group opinion, and can’t be proven true or false by facts. Cannot be tested! Examples: Statistics are objective, are positive economics. Opinions are subjective, are normative economics. Graphs Slope: Variation of Y over Variation of X (Rise over Run). The steeper the line, the bigger the slope. The flatter the line, the smaller the slope. Upward slopping = Direct relationship = positive association between 2 variables. Downward slopping = Indirect relationship = negative association between 2 variables. No slope = Independent relationship = slope is 0 (straight line).
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