Econ 2010 Week 2 Notes
Econ 2010 Week 2 Notes ECON 2010
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This 3 page Class Notes was uploaded by Leah Barton on Thursday January 28, 2016. The Class Notes belongs to ECON 2010 at Western Michigan University taught by Kim in Summer 2015. Since its upload, it has received 68 views. For similar materials see Principles of Microeconmics in Economcs at Western Michigan University.
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Date Created: 01/28/16
Econ 2010 Notes #2 Class Buyer/Seller Experiment explained: -For those of you who did not attend the class bonus experiment, here is a summary of what happened. -In the simulation, individuals were first assigned to be buyers or sellers. -Buyers are also given bid dollars, which was the maximum amount of money that they were permitted to spend on a book. -Sellers were also given a cap on the minimum that they may sell their book for. -If you were a buyer, your goal was to buy a book at the lowest possible ask price from the sellers. -If you were a seller, your goal was to sell your book to the highest possible bid from the buyers. -If each individual met their goal, they gained a profit, or gained in the money they got to keep. Production Possibilities Frontier (PPF) -An economic model; a graph that shows the combination of two goods the economy can possibly produce given the available resources and the available technology. *PPF does not include PRICE 1. Shifting the PPF – (economic growth) the PPF shifts when resources are adjusted. - A increase in resources shifts the entire frontier outwards. - A decrease in resources shifts the entire frontier inwards. 2. Opportunity Cost – what must be given up to obtain something else. - Moving along the PPF involve shifting resources from production of one good to the other. - 2 ways to calculate the PPF: 1.) Calculate slope to tell you the opportunity cost. 2.) Opportunity cost of good X =decrease in good Y/increase in good X - Ex: decrease in wheat/increase in computer - 1000 tons of wheat/100 computers = 10 tons of wheat (this is the opportunity cost, or the wheat your giving up in order to produce more computers.) Q: Ivan receives and allowance from his parents of $20 each week. He spends his entire allowance on two goods: ice cream (which costs $2 each) and tickets to the movies (which costs $10 each) What is the opportunity cost of one movie? What is the opportunity cost of one ice cream cone? A: The opportunity cost of one movie is 5 ice cream cones. ($10 movie/$2 ice creams= 5 ice cream cones) A: The opportunity cost of one ice cream cone 1/5 movies (2 movies/10 ice cream cones = 1/5 movies) *They are reciprocals! Q; Any point on a country’s PPF represents a combination of two goods that an economy… A: can produce using all available resources and technology. Q: Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, her opportunity cost of 1 bushel of green beans is … A: 2.8 bushels of corn (14 bushels of corn/5 bushels of green beans = 2.8 bushels of corn) 3. Shape of the PPF -Linear the opportunity cost of a good is constant. Assuming all the labor is identical. (This is false because everyone is different) -Bow-shaped the opportunity cost of a good is increasing as the economy produces more of the good. -the shape will be downward sloping Ch. 3 Trade Interdependence -Trade can make everyone better off -People specialize in trades. -Today we have expanded to trading across borders and benefit from the ability to exchange goods to get a cheaper price. - If there was no trade, you would have to make every single thing that you use! Ex: -Two countries: U.S. and Korea -Two goods: computers and wheat -Resource: labor -How much of both goods do each country produce and consume. Is it self-sufficient? Does it trade with other countries?
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