Week One Notes - Chapters 1&2
Week One Notes - Chapters 1&2 ECON 200
Eastern Washington University
Popular in Economics 200 - Introduction to Microeconomics
Popular in Economcs
This 4 page Class Notes was uploaded by Christine R Burns on Saturday January 23, 2016. The Class Notes belongs to ECON 200 at Eastern Washington University taught by Nathaniel Greene in Winter 2016. Since its upload, it has received 22 views. For similar materials see Economics 200 - Introduction to Microeconomics in Economcs at Eastern Washington University.
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Date Created: 01/23/16
Econ 200 Christine Burns th January 4 , 2016 Chapter 1: What is economics? (pg. 5 of the book) Economics: A basis for business, study of how people coordinate wants/desires, make decisions, comply with social customs, and political motives. It answers three essential questions in the market: o What exactly to produce, and how much o How do we produce it o For whom do we produce it for? Scarcity Humans want more than can be produced Scarcity: Goods available are too few to satisfy desires Desires are different from wants and needs. If a market cannot supply (meet the demand) for it’s wants and needs, it can be considered a shortage, not necessarily scarcity. Scarcity is constantly changing, like supply and demand are. Scarcity is highly dependent on technology and human interaction Big Idea: Scarcity is when demand is higher than supply Gratitude is not in human nature Studies show that even millionaires want more money to feel comfortable. The average person who was worth 1 million reported that they would feel more comfortable if they were worth 2.5 million, and someone worth 10 million reported they wish they were making closer to 20 million in order to feel comfortable. Comfortable is of course, relative to the person and cannot be generalized. Big idea: People always want more than they have, and that helps scarcity, which influences supply and demand Values and Decision Making Values are principles and standards that a person considers to be worthwhile and are the ideals that drive people and organizations. Values are different from person to person, so different people will make different decisions. Relative Value judgement is the relative importance that an individual assigns to an action/alternative. Microeconomics vs. Macroeconomics Microeconomics is the study of an individual choice and how that choice is influenced by economic forces. Examples of microeconomics include the creation of grocery lists, pricing of firms, how a small business is doing compared to another Macroeconomics is the study of an economy as a whole Examples of macroeconomic topics include inflation, unemployment, economic growth Aggregates: (a term generally used in macroeconomics) a whole made up of small parts Marginal Cost vs Benefit (pg. 7) Marginal cost: additional cost over and above costs have occurred aka the sunk cost Ex: Susie rents a car that costs $20 as a rental fee. This rental fee includes up to 100 miles of driving. Susie wants to drive it 200 miles. The cost for each additional mile is 50 cents, which could cost Susie $100. The marginal cost is $100. Marginal benefit: additional benefit above and beyond what benefit has occurred, and will often decrease as consumption increases Ex: Eating a cookie Sunk cost: cost already incurred, cannot be recovered or lowered, one time cost Ex: Buying a car, or time Economic decision making rule: o Marginal Benefit > Marginal Cost = Do it o Marginal Cost > Marginal Benefit = Don’t do it Opportunity Cost (pg. 7) Opportunity cost: benefit forgone of the next best alternative to the activity you have chosen Should always be less than the benefit of what you’ve chosen, but that’s not always the case Ex: If you decide to go to college, you will probably spend $20,000 a year. You could have been working a fulltime job instead of spending the money, but you likely chose to go to college due to the educational premium you are likely to receive in years coming. Forces Economic Force: mechanisms that ration scarce goods Market Force: an economic given freely by society Invisible Hand: guides our actions o If there is a shortage, prices rise o If there is a surplus prices fall o Basic theory of supply and demand o Efficiency means achieving a goal as cheaply as possible Economic Institutions Economic Institutions: Laws, common practices, organizations, etc. that affect the economy Can differ among nations Can differ from economy theory Economic Policy Analysis Deduction: thought processes based on self evident principles “fact” Induction: determining based off of patterns/stats Abduction: both of the above are used When doing Economic Policy Analysis assume the following: o People are rational and will make the expected decision. They will not try to think outside of the box or be creative. o Everything is constant. Do not forecast for a hurricane to blow through and change the economy, or for things to drastically change. Positive economics: study of what is Normative economics: study of what should be Art of economics: using knowledge of positive economics to achieve goals determined in normative economics Equilibrium: Marginal Cost = Marginal Benefit Chapter 2 th January 6 , 2016 Production Possibilites Table (pg. 27) Companies input & output to compare choices Comparative Advantage: Widget A can be made more efficiently than Widget B. Trade off: When you must choose between or balance two things that cannot happen at the same point in time. Productive Efficiency: what you can do with what you have on the curve Changes with technology First image is a neutral increase in technological resources, second is a biased increase Benefits from Trade When people freely enter trade, both parties can be expected to benefit from trade Absolute Advantage: When Country A can make a widget better than Country B Import: when Widget A is brought into Country B from Country A Export: when Country A sends Widget A to Country B Globalization: tendency of businesses to spread across the world o Provides larger markets o Increases competition Law of One Price: one good must sell for the same or comparable price everywhere
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