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by: Andrew Notetaker

Micro/Macroeconomics ECON 2010

Andrew Notetaker
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About this Document

These notes go over basic economics along with marginal benefits and opportunity costs.
Principles of Economics: Microeconomics
Paul Chambers (P)
Class Notes
micro, Macro, Economics, Microeconomics, Macroeconomics




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This 3 page Class Notes was uploaded by Andrew Notetaker on Wednesday January 27, 2016. The Class Notes belongs to ECON 2010 at University of Central Missouri taught by Paul Chambers (P) in Winter 2016. Since its upload, it has received 11 views. For similar materials see Principles of Economics: Microeconomics in Economcs at University of Central Missouri.

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Date Created: 01/27/16
I. What is Economics? Economics is the study of choice. How do people choose to allocate scarce resources among virtually unlimited wants? Scarce - A good or a resource is scarce if, at a price of zero, people would want more than is readily available. “Scarce” is not the same as “rare” Everyone must cope with scarce resources. II. Three Key Economic Ideas A. We assume people are rational • We will not intentionally do something that we know will make us worse of B. Optimal Decisions are Made “At the Margin” • Margin: a small change • We consider a small change from the status quo • Marginal Costs: the addition to total costs from a small change in behavior. • Marginal Benefits: the addition to total benefits from a small change in behavior. • If marginal benefits > marginal costs, take that action. (pros/cons) • Costs or benefits incurred in the past are irrelevant. • Opportunity Costs: value of the next best alternative that is foregone when you make a choice. • Ex1: Buy a drink., Cofee, MT DEW, Water ▪ Opportunity costs is mt dew. • Ex2: Coming to class. Come to class, Sleeping, eating ▪ Sleep, is the opportunity cost, the next best alternative. • “Trade Offs” - to get one thing you must give up something else. C. People Respond to Incentives. • If costs or benefits of an action change, we may change our decisions ◦ Marginal decisions making ◦ There are always substitutes I. Efficiency and Equity A. Efficiency ▪ Getting the most output possible from your available resources ▪ Productive Efficiency ▪ A good or service is produced at lowest possible cost. ▪ Allocative Efficiency ▪ Producing the good and services that consumers want B. Equity - “Fairness” II. An Economist’s Problem Solving Toolbox A. Correlation and Causation • Correlation: Two things frequently occur together • Causation: One thing brings about the other • Omitted Variable: A & B occur together because they are both caused by some 3rd factor. • Reverse Causation: Does A cause B, or does B cause A? C. Models • A simplification of the real world that keeps all key characteristics but, eliminates unnecessary detail. • 1. Make clear assumptions. Under what conditions is this model accurate? • 2. Predict cause & efect • 3. Describes the real world accurately • Predictions are true, Assumptions are true at least sometimes. D. Circular Flow Model • How do resources, goods and services and money move through a market economy? ◦ 1. Decision makers ▪ Households ▪ Own resources, which they sell to firms to earn income. ▪ Buy goods & services ▪ Firms ▪ Buy resources from households & use them to create a good or service. ▪ Sell goods and services back to households. ◦ 2. Markets: refer to any place or system that allows buyers and sellers to interact ▪ Resource arket or market for “factors of production”, ▪ Firms buy inputs they need to produce a good or service ▪ Market for goods and services AKA the “output market” ▪ Firms sell the product they have created to households. ◦ 3. Factors of production (resources) ▪ Labor ▪ Land; any unimproved natural resource. ▪ Capital ▪ Any man-made item that is used to produce other goods and services. ▪ Physical capital: tools, machines, buildings ▪ Human Capital: special education, training or experience that make a person more productive. Households • sell resources • buy goods and services l Resource Market l Firms • buy resources • sell goods and services I. Positive & Normative Economics A. Positive Economics • Attempts to describe the world as it is ◦ Econ. Statistics ◦ Theories about how economies work B. Normative Economics • What should be • Describes an ideal world • Involves value judgments Policy makers have to look and rely on both positive and normative


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