micro week 1-2 notes
micro week 1-2 notes Econ 2020
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This 5 page Class Notes was uploaded by kmb0095 on Friday January 22, 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 28 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.
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Date Created: 01/22/16
Intro to econ (ch. 1-2) Definition Formula What do economists do? What do they study? o Supply & demand – foundation for most but not all o Scarcity o Econ is a social science – study people & their choices o CHOICES Economics – social science concerned with how individuals, institutions, and society make optimal choices (what benefits us the most) under conditions of scarcity Scarcity – condition whereby the resources we use to produce goods and services are limited relative to our wants for them o We do the best we can to satisfy our unlimited wants Scarce good = economic good = good for which you cannot get all you want at zero cost o Cost to a consumer is different than cost to an economist o Junk mail – get for free, but someone paid for the ink, paper, postage, etc. o Free samples at Sam’s – free to us, but someone paid for the cups, toothpicks, food, etc. o Everything you can possible think of falls under the category of a scarce good, which means we as economists can study it 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 What do we as consumers do to signal to the producers how we want goods to be used? Buy more of it – if prices rise then the demand is more so they produce more If prices fall, demand is less so they stop producing or alter the production to fit our wants o Cost – the sacrifice associated with making a choice; in a standard market transaction it is paid by the producer What the producer spent to make that product (a shirt – started as threat and buttons, they spent money to make it into a shirt) o Economists count any sacrifice made in making a choice Getting out of bed to go to class, not a monetary sacrifice but it was a sacrifice Types of cost (ch.9) o Explicit costs – out-of-pocket, monetary payments Money producers spent to make a product Gas used to drive to class Intro to econ (ch. 1-2) Definition Formula o Implicit/opportunity cost – most valued option forgone (what we gave up) Could be working, shopping, sleeping, Netflix whatever instead of sitting in class ALWAYS something you gave up in making a choice o Economic cost : explicit + implicit cost Ex) economic cost of attending auburn Most everyone is paying a different price for the same outcome – a piece of paper that tells employers ‘hey pay me more’ In-state tuition: $10,424 * 4 = $41,696 Textbooks: $1,200 * 4 = $4,800 Full time job: $24,544 * 4 = $98,176 Economic cost for attending Auburn = $144,672 Resources – the inputs used in the production of goods and services; aka factors of production (basically the stuff we use to make other stuff) o Natural – land, oil, lumber, etc. o Labor – physical and mental talents used in production o Capital – all manufactured goods used in production Something that was made, then sold to producer & used to make something else Ex) class: whiteboards, projector, clickers How do we make choices? o We try to maximize our utility by using marginal decision making Utility – satisfaction a consumer gets from the consumption of a good/service Utility maximization by producers and consumers usually maximizes social welfare Marginal – additional; the change that results form an additional unit Sleep or study? Choose what benefits you the most What’s the purpose of an economist? o To use economic principles to create models that enable us to analyze and predict behavior Use these findings to create an incentive structure that will guide people to where they make decisions/choices that maximize social welfare Economic principles – statements about economic behavior or the economy that enable prediction of the probable effects of certain actions Come from observing people in a particular situation Models – simplified representations of real life Intro to econ (ch. 1-2) Definition Formula Real life scenarios and strip away as much as possible so we are able to analyze relationships that effect choices Marketing Model (supply & demand) Market – any institution that brings together buyers and sellers of a particular good or service o ‘buyers and sellers’ has a connotation that there is monetary value in a market – doesn’t have to be market for marriage, love, sex, etc. o Product markets – household demand goods and services which are supplied by firms in exchange for money o Resource markets – firms demand resources which are supplied by households in exchange for money Circular Flow Model Demand o Demand Schedule – a table that shows how much of a good or service consumers will want to buy at various prices Ex) Super bowl ticket $1000 0 buyers $800 20 $600 40 and so on Law of demand – the price of a good and the quantity demanded are inversely related Price goes down, quantity goes up o Demand curve – a line that shows the maximum that consumers are willing the pay for any quantity o Difference bw demand and quantity demanded Demand – the relationship bw P (price) and Qd (quantity demanded) for all possible prices Change in demand (D) – shift of the entire curve to the left or right o Ex) Income If my income goes down, my demand curve will shift left because demand has decreased (need to wait for a sale, goods aren’t in high demand for me bc my $ has decreased) If my income goes up, my demand will increase (bc I can buy more right now) and will shift to the right Quantity demanded – the number of units consumers are willing to buy at a specific price Intro to econ (ch. 1-2) Definition Formula Change in quantity demanded (Qd) – change in the amount purchased caused by a change in the price; movement along the curve o Price (P) goes up, quantity demanded (Qd) goes down o P goes down, Qd goes up o Demand is the INVERSE RELATIONSHIP bw P and Qd o Factors that shift the demand curve Income Normal goods – goods for which income and demand move together Inferior good – goods for which income and demand move opposite Only way to determine the classification of goods is by relationship bw income & demand o Know 3 things – how income is changing, how demand is changing, and the classification of the good (normal vs inferior) Price of related goods (5) Substitutes – goods that take the place of each other in consumption o if pizza prices go down, demand for burgers goes down o the price of one good and the demand for another go together complements – goods that are used together in consumption o if French fries prices go down, demand for burgers go up o price of one good and the demand of the other move opposite o ex) what happens to the demand for peanut butter when the price of jelly (complement) falls? Demand for PB increases Jelly’s on sale so I’ll buy a lot of jelly, I have tons of jelly so I need some more PB Expectations of future prices o Expected future prices changes and current demand move together o If you find out the price will be lower tomorrow, don’t buy it today Intro to econ (ch. 1-2) Definition Formula o Similarly, if you find out the price will be higher tomorrow, buy it today o Ex) I was shopping today but I heard there’s a sale this weekend so I’ll wait and shop this weekend Number of buyers o More buyers, demand goes up; less buyers, demand goes down o As # of buyers moves, demand moves with it (together) o Ex) as the ‘baby boomers’ get older, demand increases for Social Security, Viagra, etc. Tastes and preferences o If #1-4 don’t work, then this category takes preference o Trends, fads (Nikes, yoga pants, monograms) Supply o Supply schedule – table that shows how much of a good or service producers will offer for sale at various prices $100 360 buyers $40 120 buyers $20 40 buyers $10 20 buyers Law of supply – the price of a good and the quantity supplied are directly (positively) related o Supply curve – a line that shows the minimum that producers are willing to accept as payment for any quantity o Difference bw supply & quantity supplied Supply – the relationship between P and Qs for all possible prices Change in supply (S) – a shift of the entire curve to the left or right Shift left – decrease in S Shift right – increase in S Quantity supplied – the number of units producers are willing to offer for sale at a specific price Change in quantity supplied (Qs) – change in the amount offered for sale caused by a change in the price; a movement along the curve
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