Week 1 notes
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This 3 page Class Notes was uploaded by Vanessa Notetaker on Wednesday January 13, 2016. The Class Notes belongs to at Florida State University taught by Calhoun in Winter 2016. Since its upload, it has received 79 views.
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Date Created: 01/13/16
CHAPTER 1 MICROECONOMICS – Week 1 notes The Economic Approach 4 Learning Goals for this section 1. Identify and list the critical components of economics. 2. List and provide examples of the 8 guideposts of economic thinking. 3. Distinguish between 2 types of economic statements. 4. Avoid making 4 common mistakes. Improving Standards of Living - Happens for specific reasons What Is Economics About? (Mainly about EXPLAINING.) Explain and predict the behavior of consumers, firms, and government. Scarcity and Tradeoffs Scarcity leads to tradeoffs which result in making choices. Mechanisms that have been used to deal with the problem of scarcity: 1. Force (war, group force) 2. Tradition (past ways, family traditions - what you got came through the family line) 3. Authority (institutional - government and church) 4. Market (voluntary trade, labor markets – working for someone else) 5. Combination of 1-4 Scarcity (not enough to go around) and Tradeoffs Scarcity requires that something goes unfulfilled Issues of equity, justice, and fairness are embedded with scarcity Don’t confuse the market process as being the same a politically conservative 8 Guidelines in the Economic Thought Process: 1. There are always tradeoffs – giving up something for something else (time, etc.) Opportunitycost – what you give up; what next best alternative is (what else would you be doing if you couldn’t have your first option.) “There is no such thing as a free lunch!” – You ALWAYS have to give to get. 2. Individuals choose purposefully You want the best choice for the least cost – “Biggest bang for your buck.” This is known as rational behavior 3. Incentives play a big role – if you have a reason to act a certain way, rationally, you will act that way. 4. Thinking on a margin (additional or incremental), NOT in total Marginal benefit – value you’re getting Marginal cost- monetary cost or additional cost No value – low price High value – high price Rule to live by: If the expected marginal benefit is greater than the expected marginal cost, then engagement with the activity should continue. 5. Being better informed leads to better decision-making More information is costly to come by 6. Many choices create a secondary effect Secondary effect – usually comes later on and is not visible Primary effect is immediately visible 7. Value is subjective Value is determined by the purchaser 8. Economic thinking is scientific thinking In scientific thinking, you want to get data and use that data to support a hypothesis or answer a question Economists do this to explain and predict actions Positive and Normative Economics Distinguish between two types of economic statements Pitfalls to Avoid in Economic Thinking Don’t make these errors: 1. Violation of ceteris paribus: Ceteris paribus – “other things constant” Want only one thing to change at a time 2. Good intentions do not guarantee good outcomes 3. Association is not causation 4. Fallacy of composition Assumption: what’s good for the individual is good for the group Chapter 2 Some Tools of the Economist Trade creates value Two opposing views of trade: 1. When one person grades, one person will gain and the other will lose Referred to as a “zero-sum game” 2. When people trade both parties will gain Wealth is created by trade Voluntary trade will create wealth by benefiting both parties Transaction cost Monetary or nonmonetary barrier that lowers the benefit of trade The Importance of Property Rights 1. Common rights – everybody owns it 2. Private rights – only one person owns it Property rights change the incentives of individuals
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