Econ 202 week 3 notes
Econ 202 week 3 notes ECON 202
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This 2 page Class Notes was uploaded by Leslie Pike on Thursday February 11, 2016. The Class Notes belongs to ECON 202 at Western Kentucky University taught by Dean Jordan in Spring 2016. Since its upload, it has received 25 views. For similar materials see PRIN ECONOMICS-MICRO in Economcs at Western Kentucky University.
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Date Created: 02/11/16
Announcements: Grades are in on Blackboard. If you don’t understand why you didn’t get a 5, you can speak to Dr. Jordan and he’ll give you feedback on where you can improve. The production possibility frontier can be expanded outward by technology development, which enables us to be more productive with the same amount of resources. Cost of Economic Growth: When we use resources for research and development, we cannot use these resources for the production of goods. It is a trade-off (we have a great deal of those). However, it is a tradeoff worth making. Blockbuster is out of business and Netflix is still in business because Netflix invested in streaming. Comparative advantage: you can perform a certain activity at a lower opportunity cost than anyone else can. Absolute advantage: you are more productive than anyone else. Firm: hires and organizes factors of production. Market: arrangement of buyers and sellers doing business. Property rights: social arrangements that govern the ownership, use, and disposal of resources. Money: any commodity accepted as means of payment. The Biscuit Experiment Dr. Jordan brought in a chicken biscuit. First he offered it to the class for free. Sixteen people wanted it, so he kept raising the price until everyone but Joe lost interest. Dr. Jordan created a market for chicken biscuits at 9:30 am in room 434B Grise Hall. Market is influenced by the preferences of people (not everyone was interested in a chicken biscuit even when it was offered for free) and income (not everyone could afford the biscuit). Joe won the biscuit by virtue of him having cash on hand to pay for it. In this instance, there was only one seller. A competitive market consists of many buyers and sellers. Money price: amount of money needed to buy something Relative price: ratio of money price to money price of next best alternative good, i.e. opportunity cost. Demand: Demand for something exists when people want it, can afford it, and can make a definite plan to buy it. Quantity demand: amount consumers plan to buy at a given time period and price. Law of Demand: vary one variable, for a higher price you have a smaller demand. Substitution effect: when a price goes up, people buy substitutes. If the price of Spearmint gum goes up, people will buy less of it and more of other types of gum. Change in demand is caused by: Price of related goods o Substitutes: if the substitutes are cheap, the demand for the initial good goes down. If substitutes are expensive, demand for the initial good goes up. o Compliments: typically bought with initial good. Ex. Pizza and a drink, printers and printer ink, hot dogs and hot dog buns. If the price of compliments is low, the initial good will sell better and vice versa. If the compliments are expensive, it will hurt sales of the initial good. (What is the point of buying a printer if you can’t afford the ink, or a car if you can’t afford the gasoline?) Expected future price: if we think gasoline is going to get more expensive, we fill up now Income: the more money we make, the more we can spend o For a normal good, demand increases as income increases. o For an inferior good, demand decreases as income increases. Ex. Nobody wants to buy the low-quality knockoff if they can afford the high-quality real thing. Credit: if we think we can borrow more money, we will spend more Population: more people means more potential buyers Preferences: people buy what they like
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