Week One - Chapter 1 Notes - Principals of Economics Class Notes
Week One - Chapter 1 Notes - Principals of Economics Class Notes Econ 202
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This 2 page Class Notes was uploaded by Jessica Hutchinson on Sunday June 26, 2016. The Class Notes belongs to Econ 202 at Towson University taught by Dr. Rhoades in Fall 2016. Since its upload, it has received 4 views. For similar materials see Macroeconomics in Macro Economics at Towson University.
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Date Created: 06/26/16
Economic Principals Chapter 1 Economics – social science studying the choices people make as they cope with scarcity, the incentives influencing those choice and the arrangements that coordinate them. o How society manages its scarce resources. Scarcity the fundamental idea behind economics. We do not have the availability to satisfy all the wants of anyone. o No need for economics without scarcity o Wants exceed availability o Choice we need to make include What to produce How we produce it For whom to produce it for All of these questions deal with the allocation of resources. How people make decisions: A choice is a tradeoff. Society faces tradeoff between efficiency and equity. Efficiency: property where society gets the most from its scarce resources; economic pie is as large as possible Equity: property where economic wealth is distributed fairly among members of society; economic pie is split up fairly. Cannot have both in society People make rational choices by comparing benefits and costs “there’s no such thing as free lunch” Having to choose among alternatives leads to opportunity costs Opportunity costs: value of the most desired alternative good or service forgone in order to obtain something else. Most choices are “how much?” choices made at the margin Decisions are rarely made between all or nothing Marginal change: small incremental adjustment Example: notebook paper Choices respond to incentives. Incentives: reward or penalty that encourages or discourages an action Tax structures Speed traps Extra credits How the economy works as a whole:? Specialization and trade Improve our lives Specialize in producing what you have a comparative advantage in Example: selecting a major in college Trade benefits everyone “No nation was ever ruined by trade” – B.Frank Productivity determines our standard of living Per capita GDP measures average income Better income = better living Productivity – amount of goods and services produced from each hour of a worker’s time. Government can smooth out the fluctuations in the overall economy. Smoothing is helpful but not without cost Phillips curve: shows negative relationship between inflation and unemployment. Economic model – abstract representation of reality o Tools that economist use to understand, explain and predict economic action o Models use: Simplifying assumptions to focus on an aspect of an economic relationship The ceteris paribus assumption to hold “all other things unchanged” when evaluating changes in casual factors. o The scientist’s method involves Making assumptions Formulating hypothesis Testing hypothesis: done using historical data from real world events and increasingly with data generated from field experiments Microeconomics: studies individuals, firms, and industries and how they make decisions Macroeconomics: studies the broader economic issues such as inflation, employment and unemployment and economic growth. Economic analysis is divided into 2 general categories o Positive economic issues are testable or verifiable; studies the “what is” o Normative economic analysis is subjective requiring moral or ethical judgements; studies “what it should be” or “what ought to be”
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