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Econ 201 Microeconomics Chapter 1 Notes

by: Elshadai Smith-Mensah

Econ 201 Microeconomics Chapter 1 Notes ECON 201

Marketplace > University of Louisville > Economcs > ECON 201 > Econ 201 Microeconomics Chapter 1 Notes
Elshadai Smith-Mensah
U of L
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Chapter 1 for Microeconomics with Lynn Usher
Principles of Economics: Microeconomics
Lynn Usher
Class Notes
Microeconomics, Economics
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This 2 page Class Notes was uploaded by Elshadai Smith-Mensah on Monday February 22, 2016. The Class Notes belongs to ECON 201 at University of Louisville taught by Lynn Usher in Spring 2016. Since its upload, it has received 10 views. For similar materials see Principles of Economics: Microeconomics in Economcs at University of Louisville.


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Date Created: 02/22/16
Micro CH 1 Microeconomics 1/7/2016 Chapter 1  Economics- study of human behavior with the focus on making choices because of scarcity. - Students and time (grades/social life/sleep) - Product to business owner (cost/quality/time)  Scarcity- the desire for things is greater than that which is freely available from nature. - Want more than you can get. - Everything is ALWAYS scarce. Water v. clean water. Air v. clean air. - Goods/services are scare because the resources necessary to provide them are scarce.  Resources: what is needed to produce goods/services- also scarce 1. Human- knowledge, skill and strength - Cavemen had some resources- lacked knowledge 2. Natural- land, mineral deposits, oceans and rivers 3. Physical (Capital)- tools, machines, and buildings. - Human-made resources  Opportunity cost: the highest valued option/benefit that is sacrificed/foregone when another option is chosen. - When you do something, you don’t do something else. - “there is no such thing as a free lunch”**** - Because resources are scare, the use of resources to produce one good diverts those resources from the production of other goods.  Absence of poverty implies some basic level of need has been (food, shelter). (subjective concept) - 1950’s wealthy- air conditioning and one television  Absence of scarcity would imply that all of our desires for goods are fully satisfied (objective concept)  Scarcity necessitates rationing- 3 methods 1. First come, first served- allocated to those arrive first - Result: encourages individuals to waste a substantial amount of time waiting in line (What if ball game tickets were rationed by highest GPA) 2. Prices used in ‘Market’ Setting - Allocated to those willing to give up ‘other things’ - Result: encourages individuals to engage in the production of goods and services to generate their own income to afford their own things.**** - As a teacher, the incentive to teach is to be payed. Rewarded with a pay check, afford more things. 3. Collective decision making- government decides who gets what. - Socialism - Result: rationing through the political process encourages individuals to waste time and other resources competing with others to influence the political process. - Parents decide.  Scarcity leads to competitive behavior. Micro CH 1 - An important ingredient that encourages discovery, innovation, and economic progress. - Pursue selfish interest. - An Inquiry into the Nature and Causes of The Wealth of Nations (1776) by Adam Smith. This book is the foundation of economics. - “Individuals pursuing their own selfish interest would be directed by the “invisible hand” of market prices toward the production of those goods that were most advantageous to society.” - If you act selfishly, you are helping society because puts energy in society. Selling/being rewarded. - Flip flop selling at derby - Adam Smith said that competitive markets lead to coordination, order, and efficiency. Without the direction of central authority. Enough of everything. 1. Firms compete for more customers- newer, better, less expensive goods and services 2. Firms compete for better employees- wage and benefits 3. People compete for better jobs- higher education  Problems Studying Economics-pitfalls to avoid A. Ceterus Paribus- Latin for ‘other things constant’ and we live in dynamic word (violations lead to wrong conclusions) B. Associations is not Causation- statistical association alone cannot establish causation (sleepovers make you cranky?) C. Fallacy of composition-what is true for the individual (or the part) will not always be true for the group (of the whole) Micro and Macroeconomics. D. Good intentions do not guarantee desirable outcomes- fed legislation require health care all full time employees. Minimum wage laws.  Graphs- used by economists to communicate A. Show if 2 variables are related B. Do not show cause and effect relationships between 2 variables C. Economic theory decides if there is because and effect relationship


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