Economics 150: Chapter 1
Economics 150: Chapter 1 Econ 150-12
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This 4 page Class Notes was uploaded by Suzannah Hudson on Saturday April 23, 2016. The Class Notes belongs to Econ 150-12 at Brigham Young University - Idaho taught by Hirschi, Rick L. in Spring 2016. Since its upload, it has received 36 views. For similar materials see Econ Principles & Problems Micro in Economcs at Brigham Young University - Idaho.
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Date Created: 04/23/16
Chapter 1 Economics Notes Lesson 1: Economic Perspective: A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions. Scarcity: The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output. Because of scarcity, we are limited with our demand and option choices. The core of Economics: “There is no free lunch.” You may be treated for lunch, but someone bears the cost. But while “free” products may come at no cost to the individuals receiving them, they are never free to society because their manufacture requires the use of resources that could have been put to alternative uses. Opportunity Cost: The amount of other products that must be forgone or sacrificed to produce a unit of a product. In other words, when we make a choice, the opportunity cost is the choices we give up when we make our decision. Example; if I have to choose between a donut and a banana, if I choose the donut, I am forgoing the option of eating the banana and the benefits that come from it. Opportunity Cost is always present when a choice is made. Utility: The satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services). When we use a good to its full potential and we are satisfied with it, such as a smart phone, we are utilizing it. Consumers are purposeful in deciding what goods and services to buy. Purposeful Behavior: people make decisions with some desired outcome in mind. Marginal Analysis: The comparison of marginal benefits and marginal costs, usually for decision making. “Marginal” means “extra” or “additional.” Marginal Benefit: The perceived lifetime benefit you receive from a product (utility). In a world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else. Lesson 2: Economics also relies on the scientific method. Economic Principle: A widely accepted generalization about the economic behavior of individuals or institutions. “Economists develop theories of the behavior of individuals (consumers, workers) and institutions (businesses, governments) engaged in the production, exchange, and consumption of goods and services. “ We use the Economic Principles to analyze economic behavior and to understand how the economy works. Subheads of the Economic Principles: Generalization, Other-Things-Equal Assumption (The assumption that factors other than those being considered are held constant; ceteris paribus assumption), and Graphical Expression. Lesson 3: Microeconomics: the part of economics concerned with decision making by individual customers, workers, households, and business firms. Macroeconomics: examines the performance and behavior of the economy as a whole. Aggregate: A collection of specific economic units treated as if they were one unit. Examples: the prices of all individual goods and services are combined into the price level, and all units of output are aggregated into gross domestic product. The micro–macro distinction doesn’t mean that economics is so highly compartmentalized that every topic can be labeled as either micro or macro; many topics and subdivisions of economics are separated in both. Positive Economics: The analysis of facts or data to establish scientific generalizations about economic behavior. Focuses on facts and cause-and- effect relationships. Normative Economics: The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. Positive economics concerns what is, whereas normative economics embodies subjective feelings about what ought to be. Lesson 4: Economizing Problem: The choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce). Over time, as new and improved products are introduced, economic wants tend to change and multiply. Budget Line: A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices. To find the slope of a budget line: the ratio of one product compared to another. Example from the image above: Trade-Off: a balance achieved between two desirable but incompatible features; a compromise. Limited income forces people to choose what to buy and what to forgo to fulfill wants Lesson 5: Society must also make choices under conditions of scarcity. Economic Resources: all natural, human, and manufactured resources that go into the production of goods and services. There are 4 different categories of economic resources: Land (all natural resources such as earth, wind, sun), Labor (those workers who put forth physical and metal exertions for the productions of goods), Capital (manufactured aids used in producing consumer goods and services, such as factories), and Entrepreneurship (Individuals who provide entrepreneurial ability to firms by setting strategy, advancing innovations, and bearing the financial risk if their firms do poorly). These are called the Factors of Production. Lesson 6: Production Possibilities Curve (PPC): A curve showing the different combinations of two goods or services that can be produced in a full- employment, full-production economy where the available supplies of resources and technology are fixed. Production Possibilities Table: Lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment. Each point on the production possibilities curve represents some maximum output of the two products. Law of Increasing Opportunity Costs: The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises. The law of increasing opportunity costs is reflected in the shape of the production possibilities curve. Resources are being efficiently allocated to any product when the marginal benefit and marginal cost of its output are equal (MB = MC). Lesson 7: Almost all nations have experienced widespread unemployment and unused production capacity from business downturns at one time or another. The curve on the PPC will change if we relax the assumption that all available resources are full employed. If there is unemployment, the PPC will shift. An increase in resource supplies is affected by the growth in population, which increases in the supplies of labor and entrepreneurship ability. An advance in technology brings both new and getter way of producing goods. Example: the recent surge of new technologies relating to computers, communications, and biotechnology. Economic Growth: (1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita. Economic growth is the result of (1) increases in supplies of resources, (2) improvements in resource quality, and (3) technological advances. An economy's current choice of positions on its production possibilities curve helps determine the future location of that curve.
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