Week 1 Notes: Introduction to Economics
Week 1 Notes: Introduction to Economics Econ 2020
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This 5 page Class Notes was uploaded by Cheyenne Hunt on Wednesday January 20, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 29 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.
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Date Created: 01/20/16
Chapters 1 and 2: Introduction to Economics Jan 15 What are we studying? o Choices; micro= individual choices, macro= institutions and society choices o Economics- the social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity Scarcity- the condition whereby the resources we use to produce goods and services are limited relative to our wants for them Scarce good- economic good- good for which you can NOT get all you want at zero cost Free good- opposite of scarce good; you CAN get all you want at zero cost Price vs. Cost o Price- signal that tells producers what and how much to produce; in a standard market transaction it is paid by the consumer o Cost- the sacrifice associated with making a choice; in a standard market transaction it is paid by the consumer Types of Costs (Chapter 9) o Explicit costs- out-of-pocket, monetary payments o Implicit/opportunity cost- most valued option forgone; 2nd best choice o Economic cost= explicit costs + implicit costs Resources o The inputs used in the production of goods and services; factors of production Natural resources- land, oil, lumber, etc. Labor resources- physical and mental talents used in production Capital resources- all manufactured goods used in production How do we make choices? o We try to maximize our utility by using marginal decision making Utility- the satisfaction a consumer obtains from the consumption of a good or service Marginal- additional; the change that results from an additional unit NOTE: utility maximization by producers and consumers usually maximizes social welfare Jan 20 Purpose o To use economic principles to create models that enable us to analyze and predict behavior Economic principles- statements about economic behavior or the economy that enable the prediction of probable effects of certain actions Model-a simplified representation of how something works The Market Model (Chapter 3) o Market- any institution that brings together buyers and sellers of a particular good or service Product market- households demand goods and services which are supplied by firms in exchange for money Resource market- firms demand resources which are supplied by households in exchange for money Circular Flow Demand o Demand schedule- a Price $10 $8 $6 $4 $2 $0 table that shows how much 0 0 0 0 0 of a good or service Quantity 0 40 80 12 16 20 consumers will want to demanded 0 0 0 buy at various prices o Law of demand- the price of a good and the quantity demanded are inversely related o Demand curve A line that shows the maximum that consumers are willing to pay for any quantity Demand- the relationship between price and quantity demanded for all possible prices Change in demand is a shift of the entire curve to the left or right Quantity demanded- the number of units consumers are willing to buy at a specific price Change of the quantity demanded is caused by a change in the price; a movement along the curve Factors that Shift the Demand Curve Income Normal goods- goods for which income and demand move together Inferior goods- goods which income and demand move opposite The only way to determine the classification of the good is by the relationship between income and demand Jan 22 Tastes and Preferences Fads and other sudden trends have a positive impact on demand (move in the same direction) Substitutes and Complimentary Goods The price change of a substitution moves in an opposite direction of the demand for the good The price change of a complimentary good does not change the demand of the other good because they are used together Expectations of Future Prices The demand for a good is higher when the expected price is lower Number of Buyers Demand is high if there are more buyers in the market
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