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ECN212 Week 02 Note

by: Phoebe Chang

ECN212 Week 02 Note ECN 212

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Phoebe Chang
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Introduction #2- The Economic Approach (Social Science) ** If you would like an original pdf file, please contact me via my email **
William Foster
Class Notes
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This 4 page Class Notes was uploaded by Phoebe Chang on Wednesday January 20, 2016. The Class Notes belongs to ECN 212 at a university taught by William Foster in Spring 2016. Since its upload, it has received 62 views.

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Date Created: 01/20/16
ECN212Introduction#2 SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe( 1. Political Planning (Socialism) ○ Political organization = alternative to the use of markets ○ Government decide what how and for whom goods and services will be produced ○ Democratic political planning ■ Election prospects is an important factor to consider for political decision makers ○ Socialism ■ The government owns income-producing assets ■ The government directly decide what goods to produce ■ E.g. Margaret Thatcher ● Created financial mess ● Spending too much other’s money 2. Laws of Supply and Demand has consequences ○ Consequences ■ Trying to control prices will have unwanted reactions ■ Trying to control quantity will have reactions too ■ Good intentions might not have good results ■ E.g. Prohibition, new restriction laws, black markets ○ Cannot ignore the demand and supply desire ○ Secondary Effects are important ■ Increasing bad behavior due to insurance, car safety equipment (E.g. Apple Care, Seatbelt, etc) ■ Price Controls (E.g. minimum wage, rent control) 1 3. Definitions ○ Microeconomic ■ aka Price Theory ■ Branch of economic that focus on smaller human units ■ E.g. individuals households, small businesses decisions ○ Macroeconomic ■ Branch of economic that focus on a complex human ■ How human behavior affects outcomes in highly aggregated markets (E.g. labor / consumer products) ○ Theory ■ Shows connections of facts ■ Based on assumptions ■ Need confirmation of the fact ■ Then can be used to predict and explain real-world situations without justification since it’s proven already ■ Can show cause-and-effects ○ Models ■ Based on someone else’s feet ■ Built to simplify things and reduce dimensions of the world ○ Association / Correlation ■ Doesn’t show causation ■ Statistics never allow us to prove cause-and-effects ○ Fallacy of Composition ■ The wrong concept of ‘individual view = group views' 4. Interest of Economists ○ Positive Analysis ■ “What is” = facts ■ The actual relationship between different aspects of the world ■ Can be supported or corroborated by evidence ■ E.g. The increase in the cost of diving insurance due to DUI (measuring dollars) ○ Normative Analysis ■ “What ought to be" 2 ■ An opinion that is involved with some judgement ■ Cannot be supported or corroborated by evidence ■ NOT discussed in economics because cannot share same values with everyone 5. Trade ○ Foundation of the trade = mutual gain ○ Value ■ Created by exchanges ■ Letting go least value items ■ Getting more value items ○ Transaction costs ■ Time ■ Effort ■ Resources needed to be used for a trade ■ Reduce our ability to gain from potential trades ○ Middlemen ■ Person who buys, sells or arranges trades ■ Reduce transaction costs ■ E.g. Online selling websites, local grocer 6. Production Possibilities Frontier ○ Frontier ■ Due to limited resource, there are limitations for input and output ○ Resources in production ■ Capital ■ Entrepreneurship ■ Labor ■ Land ○ Production possibilities curve (PPC) ■ On the PPC = efficient ■ In the PPC = inefficient ■ Out of the PPC = impossible ○ Shifting PPC Outward 3 ■ Increase in economy resources ■ Advancing technology ■ Improvement in rules of economy ■ Increasing labor and work time ● E.g. WWII increase of PPC 7. Division of Labor ○ Break down the production to different tasks ○ Specialization + Division of Labor = Increase Output ■ Allow individuals take advantages of their existing skills ■ Allow individuals to expertise on certain skill ■ Allows for mass production technology to work 8. Law of comparative advantage ○ When one specialize on a good that has lower opportunity cost, one will have an increase on the total economic welfare ○ Having absolute advantage​at all production doesn’t mean you will have advantage on alcomparative advantage ○ Opportunity cost calculation = losing / gaining ○ Example ■ German vs French Production (mL) ● Beer: 60 vs 30 ● Wine: 20 vs 15 ■ German production opportunity cost ● 1 mL Beer: 20/60=1/3 wine ● 1 mL Wine: 60/20=3 beer ■ French production opportunity cost ● 1mL Beer: 15/30=1/2 wine ● 1mL Wine: 30/15=2 beer ■ Conclusion ● German produces beer ● French produces wine ● Due to having lower opportunity cost in each item 4


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