Chapter 1 Economic Approach
Chapter 1 Economic Approach Eco2013
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This 3 page Class Notes was uploaded by Jessica Sanchez on Thursday January 28, 2016. The Class Notes belongs to Eco2013 at Florida State University taught by Joab Corey in Spring 2016. Since its upload, it has received 34 views. For similar materials see Principles of Macroeconomics in Economcs at Florida State University.
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Date Created: 01/28/16
ECO 2013 Chapter 1: The Economic Approach Is Life Getting Better or Worse? 68% of people say things are tougher What objective measures can we analyze? Life expectancy (Life 30+) Health (now technology, medicines) Income (Higher now than 40-50 years ago) Education Entertainment (a lot more) Changes: Transportation- safety, comfortability Technology- improved overall, cheaper, smaller Medicine- high tech machines, procedures Entertainment- more, technology What is Economics? The study of how we make choices under scarcity 1. Choice- the act of selecting among alternatives. 2. Scarcity- concept that there is less of a good freely available from nature than people would like. (Example) time, money, textbooks. Anything that has a price on it has a price because there is a limited/scarce amount of supply. Scarcity Scarcity is not the same thing a poverty. Poverty is different in other places or times, more subjective. 1. Necessitates rationing - Rationing: allowing scarce goods to those who want them. - In a market economy: price is used to ration goods. (US) encourage people to work for the money to be able to pay for the good. - Consequently, leads to competing behavior. Which is a good thing (economics) to create innovation. Natural selection. Best business provide supply to demand with low cost survive the longest, creating most value. Resources An input used to create an economic good - Human resource (human capital), think of athletes in entertainment - Physical reassure (physical capital) man made tool or machine - Nature resource, comes from earth 1. Capital is human made resource used to produce other goods and services. (Examples of human capital) Einstein’s intelligence, what people provide to the world Economic Way of Thinking 1. Resources are scarce so decision makers must make tradeoffs. (No free lunch) just because it's free to you doesn't mean it's free to others or the world. - Opportunity cost, highest value alternative that must be sacrificed when choosing an option. (Example) An hour of your time. In class instead of sleeping or watching television. Hour of day lost. NO SOLUTION ECO 2013 2. Individuals are rational: they try to get the most from their limited resources. “Greatest benefit at least possible cost. (Example) Chick-fil-A vs 5 Guys Burger (Example) Welfare vs Education Note: What is rational for one person may not be rational for everyone 3. Incentives matter: choice is influenced in a predictable way by changing incentives. (Example) Money Game 4. Individuals make decisions at the margin. Marginal- describes the effect of a change in the current situation. (Example) Olive Garden A. All you can eat: soup, salad, breadstick $7 B. Chicken Parmesan: soup, salad, breadstick $12 Marginal Benefit: Chicken Parmesan Marginal Cost: $5 *Cost-benefit analysis- one will undergo an action when the MR outweigh MC. 5. Information helps us make better choices, but is costly. (Example) New house vs new notebook 6. Beware of secondary effects: economic actions generate both direct and indirect effects. (Example) Fuel efficiency regulations. 7. The value of a good or service is subjective: because goods are subjective, voluntary trade creates value (Example) How much would you pay for a pack of gum? *Moving goods and services to those who value them most is a primary source of economic progress. 8. The test of a theory is its ability to predict: if real world events are consistent with a theory, then that theory is valid. (Example) Elephant is afraid of mice Positive vs Normative Economics Positive: the scientific study of what is (testable) VS. Normative: Judgements about what people think, based on opinions (not testable) January 19, 2016 4 pitfalls to Avoid in Economic Thinking 1. Violation of centers paribus principle. Ceteris paribus is the other things constant Ex. Buying eggs: if the price increases people will buy fewer eggs, ceteris paribus 2. Good intentions do not guarantee desirable outcomes. Ex. Suicide warning on antidepressants medications. Ex. C&H Taxi - Regulation for 24-hour lease to 11 hours a lease - 4 years prior, 11895 leases, 33 at fault accidents - 4 years after, 9858, 45 at fault accidents ECO 2013 3. Association is not causation Just because y and x joined doesn't mean they caused z Ex. Ice cream sales and homicides Ex. Vote Odin 4. Fallacy of composition: belief that what is true for one might not be true for all Ex. When you get a raise vs. when everyone gets a raise Micro vs. Macro - Microeconomics, focuses on how human behavior affects the conduct of affairs within individually defined units such as households or firms (the trees) - Macroeconomics, focuses on how human behavior affects outcomes in highly aggregated markets such as the nation’s market for labor (the forest) Review 1. What is scarcity 2. 8 guideposts to economic thinking 3. Positive vs normative economics 4. 4 pitfalls to avoid in economic thinking
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