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by: Vaibhavi Notetaker

Microeconomics Econ 2306

Vaibhavi Notetaker
GPA 3.8
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First set of notes for test 1
Roger Wehr
Class Notes




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"Amazing. Wouldn't have passed this test without these notes. Hoping this notetaker will be around for the final!"
Dr. Judah Hermann

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This 4 page Class Notes was uploaded by Vaibhavi Notetaker on Thursday February 11, 2016. The Class Notes belongs to Econ 2306 at University of Texas at Arlington taught by Roger Wehr in Spring 2016. Since its upload, it has received 42 views. For similar materials see Microeconomics in Economcs at University of Texas at Arlington.


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Date Created: 02/11/16
Econ Ten fundamental principles of economics 1. Scarcity is inescapable 2. Risk is unavoidable: certain things are riskier than other things 3. All people must make choices: opportunity cost- the best forgone alternative (wants approaching infinitydivided by fixed resources represents economics) intelligence comes from two Latin words inter (between) and lego (choices) 4. Incentives matter 5. People generally act in their own self interest: Adam smith father of economics ‘wealth of nations’. Invisible hand (self interest) makes us get out of bed in the morning. 6. There is often more than one way to produce things: Q=f (k, l) Cobb Douglas Production function. Q is quantity, output, K is capital and l is labor. 7. Voluntary exchange is mutually advantageous: 8. It is has wealth not poverty which has causes 9. Public policies have primary effects and secondary effects: some good, some bad 10. In the end economic laws tend to prevail 2 lecture Economics is a social science which attempts to explain how individuals, firms, and nations, allocate scarce resources among competing interests. Factors of production: a. Land- rent b. Labor- wages c. Capital- interest d. Organization- profit Positive vs normative statement: positive statements is a fact, it says what is. Normative statement is based on your valve judgment and it says what should be. 3 lecture Macroeconomics: aggregates. AS AD AE Microeconomics: individuals, entrepreneurs, firms, industry. Profit= quantity(price-average total cost) Sectors of macroeconomics 3 questions all economics must answer. a. What to produce(allocation of resources) b. how to produce(production techniques) c. For whom to produce (allocation of output). Four economic systems: a. Capitalist(free market, laisse faire, price answers), b. Command and control(government answer), c. Compromise(combo of price and the government), d. Customary/traditional (tradition answers). 6 economic warnings: 1. ‘Post (after) hoc (this) ergo (therefore) propter (because of) hoc (this)’ fallacy (time series data, when you look at one thing at different periods of time). 2. Fallacy of composition 3. Correlation doe not necessarily mean causation (things can be correlated and still not be causal) (cross sectional data, when you look at different individuals in the same time period ) 4. Violation of ‘ceteris (other things) paribus (disparity or parity)’ means other things being constant. 5. Inclusion of a irrelevant variable 6. Exclude a relevant variable Demand is the various quantities of a good or service that a consumer is both willing and able to purchase at various prices per unit of time ceteris paribus. When price of the good increases quantity demanded decrease. They have an inverse relation. It is the law of demand. Price is on the vertical axis of the graph is and is an independent variable. Quantity is on the horizontal axis and is a dependent variable. Change in quantitydemanded causes movement along the graph. Change in price will never cause shift in demand curve. The non price parameters of demand: a. price of other goods, b. income, no. of buyers, c. taste and preferences, d. advertising, e. future price expectations, f. Technology, price of input. Change in demand curve based on change on a non price parameter will cause a shift of the demand curve. Positive relation with substitutes and negative relation with complimentary goods. Supply is the various quantities of a good or service that a producer is both willing and able to sell at various prices per unit of time ceteris paribus. PPC- production possibility curve. Perfectly adaptable Specializer resources Allocative efficiency- price=marginal cost Productive efficiency price=min. average total cost Quantity supplied is function of price (positive relation) Non price parameters of supply- a. no. of sellers, b. expectation of sellers, c. price of input, d. technology, e. taxes and subsidies, f. Weather. If the price of a good changes from p1 to p2 then the supply curve moves from qs1 to qs2, and causes movement along the supply curve described as a change in quantity supplied Change in a non price parameter causes shift in the supply curve, and is described as a change in supply. Equilibrium and disequilibrium Shortage- more demand than supply Surplus- more supply less demand Equilibrium- equal Comparative statics- three step process, a. step1- identify the initial equilibrium price and quantity, b. step2-identify the shift, c. step3-identify the new equilibrium. Price floors- the minimum price of a good is set bythe government to help the seller, below which thegoodcan’tbesold. Effectivepricefloors are always set aboveequilibrium priceandmust result in surplus, otherwise it’ll be ineffective. For ex. Minimum wage Price ceiling- the maximum price of a good is set by the government, to help the buyer, above which the good can’t be sold. For ex. In Texas there is price ceiling on rent. Effective price ceilings are always below the equilibrium price, and must result in a shortage, otherwise it is ineffective. Elasticity It is a measure of responsiveness. Price elasticity of demand=| (%change in quantity demanded) / (%change in price) | If the no. is greater than one it’s elastic If the no. is less than one it’s inelastic If the no. is equal to one its unit elastic If the no. is infinity it’s perfectly elastic If the no. is zero it’s perfectly inelastic What makes a good more (or less) elastic? 1. No. of substitutes- ( few substitutes more inelastic, more substitutes more elastic) 2. Time- ( short run more inelastic, long run more elastic) 3. Product definition- (narrowly defined more elastic, broadly more inelastic) 4. % of budget- (small more inelastic, large more elastic) 5. Luxury vs. necessity- (necessity more inelastic, luxury more elastic)


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