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ECO 110: Week 1 Notes

by: Frankie Bjork

ECO 110: Week 1 Notes ECO 110

Frankie Bjork
UW - L
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About this Document

These notes include "How to think like an economist" and information on Economic Models. All of this will be on our first exam.
Microeco & Pub Pol
Amena Khandker
Class Notes
Economics, Eco 110, Microeconomics




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This 2 page Class Notes was uploaded by Frankie Bjork on Sunday January 31, 2016. The Class Notes belongs to ECO 110 at University of Wisconsin - La Crosse taught by Amena Khandker in Spring 2016. Since its upload, it has received 52 views. For similar materials see Microeco & Pub Pol in Economcs at University of Wisconsin - La Crosse.


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Date Created: 01/31/16
Eco 110: 1/25-1/29 Chapter Two Thinking like an Economist  Economics: the study of how best to allocate scarce resources to satisfy unlimited wants  Resources (Factors of Production): inputs used for further production o Land: free gifts of nature (forest, minerals, oil deposits, water) o Capital: human made (machinery, factory, storage, transportation)  Capital goods: products used to make consumer goods  Consumer goods: final products for consumer consumption  MONEY/FINANCIAL CAPITAL IS NOT REAL CAPITAL o Labor: physical and mental talents of people except entrepreneurial ability o Enterprise: takes risks and makes business decisions Economic Models 1. The Circular Flow Diagram: shows the flow of inputs, outputs, and money through markets among households and firms =demand side Product =supply side Househol Firm ds s Resourc e 2. The Production Possibilities Frontier (PPF): a. Opportunity cost: highest-valued alternative that is forgone to obtain something else b. Production Possibilities: alternative combination of two goods that could be produced in a given time period with all available resources and technology c. Assumptions: i. Efficient allocation of resources: full employment/production ii. Fixed resources and technology iii. Two products Type of A B C D E Product Bread 0 1 2 3 4 (food) Guns 10 9 7 4 0 (goods) Lessons from PPF  Scarcity: combinations of output lying outside the PPF are unattainable  Choice: select any combination of goods lying on the PPF  Marginal Opportunity Cost: downward sloping PPF  The Law of Increasing Opportunity Cost: bowed-out PPF  Unemployment and Underemployment: inside the PPF  Economic Growth: outward shift of the PPF; can happen in two (2) ways: o Increase in the quantity or quality of resources o Technological advances  Real World Application: o Students decide between work and study o Tax revolt: less resources should be allocated to public and more to private goods o Comparative advantage: ability to produce a good at a lower opportunity cost than someone else Scarcity  Compels a society to answer three (3) economic questions: o What to produce? o How to produce it? o For whom to produce?


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