First Week of Notes
First Week of Notes ECON2020
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This 3 page Class Notes was uploaded by Morgan Genelin on Sunday February 14, 2016. The Class Notes belongs to ECON2020 at University of Colorado taught by Murat Iyugan in Winter 2016. Since its upload, it has received 205 views. For similar materials see Principles of Macroeconomics in Economcs at University of Colorado.
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Date Created: 02/14/16
January 14, 2016 Chapter 1 4 Principles for Understanding individual choice 1. Resources are scarce a. Causes people to make choices b. Always prevalent and important c. Resources and time 2. Opportunity Cost nd a. Cost of what you must give up (2 option) b. Not just monetary 3. Marginal Analysis looking at extra a. When optimally choosing things i. Take the least common denominator, think of the benefit and cost of dollar or cost b. Go until marginal cost = marginal benefits 4. Rationality “somewhat” a. Individuals think and behave in a calculated way or rational way i. Act driven by self interest b. Behavior economics 5 Principles for understanding how choices interact 1. Gains from trade (chapter 25) a. Makes everybody better off b. Specialization i. Creates comparative advantage, then trade can occur 2. Markets tend towards equilibrium a. All will fall to MC=MB b. Equalize D&S 3. Efficient use of Resources a. Production possibilities frontier 4. Markets generally produce efficiency a. Try to get to equilibrium generally efficient b. Produce correct number needed for number of people 5. When markets fail, government can fix it a. Monopolies, trusts, collusion, etc. 3 Principles of the macro economy 1. Someone’s income equals someone else’s spending a. Link everything adds up 2. Sometimes they don’t equal a. Business cycle i. Recessions, booms, etc. 3. When that happens the governments can fix Positive Analysis saying what is happening Normative analysis saying what ought to happen Chapter 2 Production Possibility Frontier: shows value contractions, benefits of trade, marginality 1. Feasibility and Efficiency a. Is it realistic or not? Is it doable or not? b. Work inside the frontier or on the line i. Outside the frontier is unfeasible 2. The Opportunity cost= slope a. For each gain in 1 product, there is a loss in the other b. Go until equilibrium 3. Increasing opportunity cost a. As you increase 1more and more ahead, you lose more and more i. It isn’t a diagonal slope 1. Actually bowed as opportunity cost goes up 4. Economic growth a. Results as an outward expansion i. Shit in curve to increase PPF Gains from trade in general all is good o Absolute advantage: one is better in absolute terms. o Comparative advantage: opportunity cost is lower for one than another o Slope of PPF is opportunity cost Xgood= rise/run (slope) y/x Ygood= inverse slope x/y o Distribution is larger Therefore even if people lose there is more gain than loss As long as slopes of OC are different there will always be gains
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