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Week 1 notes for EC 201

by: Iman Usmani

Week 1 notes for EC 201 EC 201

Iman Usmani
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About this Document

Introduction to microeconomics
Bobby Puryear
Class Notes




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This 4 page Class Notes was uploaded by Iman Usmani on Saturday January 23, 2016. The Class Notes belongs to EC 201 at North Carolina State University taught by Bobby Puryear in Winter 2016. Since its upload, it has received 28 views. For similar materials see in Economcs at North Carolina State University.


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Date Created: 01/23/16
1/7/16 EC 201: Microeconomics with Booby Puryear Economics: Foundations and Models Week 1 CHAPTER ONE  Goods and services o An example of a service is getting your nails done  Scarcity is important for the marketplace o An example is your wallet (a college student’s wallet)  The three major players in economics o Firms o Consumers o Government  Economic incentives o Example: winning the lottery  Marginal analysis o Also called “incremental” analysis o Optimal decisions are made at the margin  Benefits have to outweigh the cost in order to choose that option  Ex: Doctor makes a decision about margin to either keep the office open for 8 hours or 9 hours a day. With research, the assistant finds that the 9-hour option can make them $300,000 a year. How does this compare to the 8-hour option?  The movement from one option to the other is considered marginal/incremental analysis o Tradeoff o Opportunity cost – what do you have to give up to gain something else?  You can either study or hang out with your friends. What are you willing to give up?  Market based vs. centrally planned economy o Market based – consumers and producers are the important played o Centrally planned economy – the government is the most important player CPE_____________________________________________________________________________MBE Ex: North Korea Western Europe Cuba USA Former Soviet Union Canada  Mixed economy – came to be when the Great Depression happened. It made market economies take a step towards being more like a centrally planned economy with minimum wage, health care, social security, etc. 1/12/16 POSITIVE VS. NORMATIVE ANALYSIS - Positive analysis is concerned with what is o If-then statements; cause and effect o Will be used more than the normative analysis in class o Ex: news article - Normative analysis o Analysis concerned with what ought to be o Statements of opinion o Ex: Editorial - Examples: o The price of gas is too high – normative o As the price of gas increases, fewer SUVs will be purchased – positive o An increase in the minimum wage will impact the wages receive by low-skilled workers – positive o Congress should enact legislation to increase the minimum wage – normative o College students should maximize their involvement in internships given the high correlation between internship participation and permanent job salaries – normative o During drought conditions, the City Council should enact water restrictions, because the cost of filtration increases as lake levels decrease – normative o There is strong correlation between education and earnings – positive  NOTE: if there is a should, most likely a normative statement since it implies that it is opinion based. MACROECONOMICS AND MICROECONOMICS - Microeconomics – the study of how households/consumers/firms make choices, how the interact in markets, and how the government attempts to influence their choices. o Small picture economics - Macroeconomics – the study of how the economy as a whole, including the topics such as inflation, unemployment and economic growth o Big picture economics - Some additional important terms: o Entrepenuer – the risk taker o Goods and services o Consumers/households – interchangeable o Capital  Ex: a mixing bowl where the ingredients are physical capital (physically there i.e. buildings, streets…), human capital (who is working there?) and financial capital (monetary) - Correlation: o Negative/inverse – as one goes up, the other product goes down o As the line becomes steeper, the slope is becoming bigger since the rise is greater than the run. **** Test question: how do you incorporate more than two variables at a time on a Production Possibilities frontier/business model graph? Answer: Microeconomics wants to show more than two variables which is done by shifting the graph. CHAPTER 2: - Video about BMW – 70% of what is made at BMW in South Carolina is shipped out - Scarcity – a situation in which unlimited wants exceed the limited resources available to fulfill those wants o Ex: a wallet, the hours in a day o Scarcity requires trade-offs – what will you give up in order to do something else?  Goods and services and the economics resources used to make them or factors of production – workers, capital, natural resources, and entrepreneurial ability – are scarce. o Production Possibilities frontier: a curve showing the maximum attainable combinations of two products that may be produced with AVAILABLE RESOURCES and CURRENT TECHONOLOGY.  Also known as production model  Ex: tools in a pickup truck (like wood) used to make something - Opportunity cost – the highest-valued alternative that must be given up in order to engage in an activity o Will always be expressed in terms of the other product in question o Ex: What is the opportunity cost of moving from point A to B? Choice Quantity of hybrids Quantity of SUVs produced produced A 800 0 B 600 200 C 400 400 D 200 600 E 0 0 You have to give up 200 hybrids from being produced if you want to move from A to B. - Efficient in economics – if you use all of your resources then you are technically efficient o When looking at a graph, being technically efficient is if the point is on the line or wall. Anything below the line (inside the triangle the line creates) is considered inefficient in order since not all of the resources are used. o When graphing, it does not matter which product is on which axis. *NOTE: if the problem says “marginal,” think of it as incremental since the terms are interchangeable in microeconomics.


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