ECON 201: Microeconomics
ECON 201: Microeconomics Econ 201
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This 5 page Class Notes was uploaded by Jensine Bonner on Sunday February 14, 2016. The Class Notes belongs to Econ 201 at Towson University taught by Dr. Leppo II in Winter 2016. Since its upload, it has received 78 views. For similar materials see Microeconomic Principles in Economcs at Towson University.
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Date Created: 02/14/16
ECON 201: Microeconomics Notes taken, interpreted, and formatted by: Jensine Bonner Week 2 of Notes; Chapter 2 2/5/16 th February 5 , 2016 Key (Abbreviations of Important Terms): (HH)- Household (BF) - Business Firm (G)- Government (s) - services (g) - goods (l)- labor (K)- Capital (S)- supply NEW (MC)- Marginal Cost NEW (MP)- Marginal Principle NEW (MB)- Marginal Benefit Marginal Principle (MP) Opportunity Cost (OC) Is what a consumer chooses to sacrifice to get something else Relative Prices: Production of a good & or service stated in terms of another good (g) or (s) service (Ex. 1 Cake or 4 cupcakes) OC of 1 cake= 4 cupcakes OC of 1 cupcake= ¼ cake 1) Marginal Benefits (MB): Extra benefits resulting from a small (incremental) increase from a given activity Marginal Cost (MC): Extra cost resulting from a small (incremental) increase in a given activity The answer to many problems in Microeconomics will be MB=MC. Why? MB must go down, MC must go up, and the overall MB will increase. Overall, you (consumer) are most often thinking about your own satisfaction 2/8/16 February 8 , 2016 *Opportunity Cost (cont.)* Explicit Cost :Have to pay directly *($$)* Implicit Cost :Didn’t pay it out *forgone, could’ve but didn’t* Ex.1) Attending College Tuition & Books: $ 30,000 (Explicit Cost) Forgone Income: $ 40,000 (Implicit Cost) Food: $ 4,000 (Not part of opp. cost for attending college) Apartment: $6,000 (Not part of opp. cost for attending college) 30,000 + 40,000= 70,000 (total opp. cost) Production Possibilities Frontier (Curve) Is a curve that shows the possible combination of production a BF can produce while fully utilizing their F or P (Factors of Production) When a curve is exaggerated in the middle, there are imperfect substitutes The closer the products are in substitutability, the straighter the line will be Normally, you will be producing, and should be producing on the curve Can produce anything on or within the curve Outside of the curve is where you want to be, since outside of the curve shows more production 2/10/16 February 10, 2016 *Marginal Benefit (cont.)* Diminishing Returns: Essentially when 1 input increase while all other inputs remain fixed, Y will increase at a decreased rate. The output will increase, but at a slower rate than it would if you increased the others as well Short Run: When (1) or more factors of production are fixed Long Run: A period long enough for a BF to change all factors of production Nominal Value: The real value of something (Ex. $5 is $5 because it literally says $5) Real Value: What you’re able to exchange it for Anything that can be exchanged/trade for something Anything you can buy with it Voluntary Exchange: The act of buyer & seller when, both parties are freely & willingly engaging in economic transaction Exchange more equitable than “gifts” ( what is free, nothing is given to earn it) Trade/Voluntary exchange is good and most profitable because there is no change to overall wealth *End of Chapter 2* Chapter 3 What role do markets serve? Trade or exchange of goods Large BF’s are opposed to free markets & exchanges. Why? markets force business’ to compete Business’ desire to sell you as much (product) for as much money (cost) as they can The competition between BF’s is what fosters efficiency A direct cost to business is posed when a BF does not minimize price, but can’t minimize cost BF’s don’t actually want to compete, but they have to Mercantilism: The driving reason behind why Adam Smith wrote the ‘Wealth of Nations’ Main point o’ Mercantilism is zerosum gain which translates to the idea that a market economy is inheritably flawed (The idea that) (A) is better off only if (B) is worse off *Socialism & Communism are based upon zerosum gain* * Colonization & the slave trade are often backed up by the principles used in Mercantilism* Absolute Advantage: The ability of a person, BF, or G to produce goods at a lower absolute or resource cost Theory of Competitive Advantage: The ability of a person, BF, or G to produce at a lower OC Circular Flow is a Diagram which shows: The flow of goods & $$ between markets 1) Factors Market: *Also referred to as the input market* When inputs that produce goods & services are sold by the owner of the factors of production It’s role is to aide BF’s in finding resources 2) Product Market: The output or allocation market Organizations that sell what is produced (Ex. Target & Walmart) End of Week 2 Notes, and end of Chapter 2 Notes. Notes will be uploaded weekly, so be sure to come back again! Jensine Up Next: Week 3 Notes (A continuation of Chapter 3 notes, and the beginning of Chapter 4 notes)
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