ECON 2105 Prof. McWhite Week 1
ECON 2105 Prof. McWhite Week 1 ECON 2105
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This 2 page Class Notes was uploaded by Randi on Friday August 19, 2016. The Class Notes belongs to ECON 2105 at University of Georgia taught by McWhite in Summer 2016. Since its upload, it has received 125 views. For similar materials see Macroeconomics in Macro Economics at University of Georgia.
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Date Created: 08/19/16
Week 1 Notes What is Economics? o Looking at human behavior, based on choices o In other words, it is the study of making choices in the presence limited resources and unlimited wants (scarcity) 2 Major Divisions of Economics: 1. Microeconomics: focused on the decisions of individual units (person/company/country) Concepts like: externalites, Robert’s budget, a firm’s decisions 2. Macroeconomics: focused on interactions of the individuals as a whole economy Concepts like: GDP, inflation, tax policy, exchange rates 5 Big Concepts of Economics 1. People respond to incentives 2. Trade-offs 3. Opportunity costs 4. People make decisions at the margin 5. Trade increases total value 1. People respond to incentives Incentives are motivation factors in making decisions the way we do – they can either be positive or negative *They change our behavior Direct Incentive: hopefully causes the desired result Indirect Incentive: Unexpected behavior 2. Trade-offs Because we cannot do everything, we must consider our options What are the other ways I could allocate my resources? We make trade-offs with our resources 3. Opportunity costs o The next best option that you had to give up o The highest value forgone alternative o The trade-off of your next best choice for your resources 4. People make decisions at the margin This is based off the assumption of the Principle of Self- Interest Week 1 Notes o People are rational and want to make the best decision on how to spend their resources Most decisions happen in incremental changes o This means they are not “all or nothing.” People stop when the additional cost is greater than the additional benefit of an action. o What is the benefit of getting an additional unit? For example: You are hungry and eat a piece of pizza. The first slice is great, and the second slice is also good. On the third slice, you get full. Is there any benefit in eating the fourth slice? After every slice of pizza, your satisfaction of the next unit, or your marginal benefit, started to diminish. o Your optimal decision point is where the Marginal benefit = the Marginal Cost MB=MC 5. Trade increases total value Trade is beneficial to all parties involved! *Market: A place where buyers/sellers meet to buy/sell goods and services Markets make us better off because we end up with more stuff! o Everyone focuses on their comparative advantage o Markets focus on the relationship between competition and cooperation People decide who they want to compete with and who they want to cooperate with Positive Economics: Positive Economics is facts and not opinions Analysis of a situation Not something that can be argued Normative Economics: This is opinionated economics that is goal-oriented People can argue their viewpoints and what they think is best
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