Popular in Introductory Microeconomic Analysis and Policy
Popular in Economcs
This 4 page Class Notes was uploaded by John Om on Monday January 25, 2016. The Class Notes belongs to ECON 102 at Pennsylvania State University taught by Wayne Geerling in Winter 2016. Since its upload, it has received 108 views. For similar materials see Introductory Microeconomic Analysis and Policy in Economcs at Pennsylvania State University.
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Date Created: 01/25/16
Topic 2 Economic Models Economists use theories to analyze realworld issues Similar to science e g chemistry or physics Use normative or positive analysis Positive V Normative Analysis Positive statement 0 Can be tested to be true or false Normative statement 0 An opinion Cannot be tested to be true or false Which is generally preferred 0 Positive Like to test claims with data Economic Models Simplify a complex portion of the economy Underlying assumptions are important Assumptions Make it easier to study a specific part of the complex economy Ceteris paribus is Latin for holding all else constant A common assumption made Economic Variables Something measurable that can take on different values Can be determined by our economic model endogenous factors or can be out variables exogenous factors Endogenous vs Exogenous Endogenous factor a variable that is built into the model Exogenous factor a variable that is outside the model cannot control Correlation vs Causation There is a correlation between variables when their values change at the same time There is a causation between variables when one causes the other to change What determines a person s wage W f Education Positive Effect Age Positive or Negative Effect Experience Positive Effect Skills Positive Effect Pleasant Conditions Negative Effect Female A Negative Effect here may be indicative of discrimination Wage depends on the endogenous variables How will a change in the variables affect wage What are some possible exogenous variables Production Possibilities Frontier Production Possibilities Frontier Assumptions of this model Graph PPF Production Possibilities Frontier Why is the PPF downward sloping Why are we unable to produce certain combinations Efficient points Inefficient points 0 Point INSIDE the PPF Unattainable for now points 0 Point outside PPF PPF amp Opportunity Cost Nonlinear PPFs More realistic PPF is nonlinear amp bowed outward 0 Slope not constant 0 Slope gets steeper as we move from left to right 0 Opportunity costs will not be constant Law of increasing relative cost 0 Increasing opportunity cost of production as you produce more of that good 0 Produce more of pizza give up increasingly larger amounts of wings Increasing Opportunity Cost Increasing Oppouity Cost 1 w Quantity of FRIES produced 100 r 9c 7 0 50 30 3 IL I I T 39 0 120 200 250 230 300 Quantity 21 wings produced D gt C Opp Cost 30 wings B gt A Opp Cost 80 wings Shift in PPF If the PPF expands outward signals economic growth Previously unattainable good combinations now possible to produce The PPF could shift graphically in two ways 0 New resources or technology could be introduced that either I Affect production of one good I Affect production of both goods Shift in PPF 1 good Shift i PPF 00d 1 Quantity of r r pizzas produced 120 39 100 39 Quantiwa mugs produced
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