Micro Economics Notes Week 1
Micro Economics Notes Week 1 ECON 2106
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This 3 page Class Notes was uploaded by Chapman Lindgren on Friday August 19, 2016. The Class Notes belongs to ECON 2106 at University of Georgia taught by Till Schreiber in Fall 2016. Since its upload, it has received 397 views. For similar materials see Principles of Microeconomics in Economics at University of Georgia.
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Date Created: 08/19/16
Microeconomics (ECON 2106) Chapter 1 Notes Economics is driven by principles of scarcity and incentives. Scarcity is our inability to satisfy all our wants. Because we face scarcity, we must make choices. An incentive is a reward that encourages an action or a penalty that discourages an action. Microeconomics is study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. It is, more simply put, the study of economics at an individual, group or company level. Example of micro: why are students buying more e-books and fewer hard copy books? Here are four additional examples of microeconomics. Macroeconomics is the study of the performance of the national and global economies. Example of macro: why is the unemployment rate in the US so high? Goods and Services are the objects that people value and produce to satisfy human wants. A good would be something like a candy bar or a t-shirt. A service might be a haircut, taxi ride or mail delivery. Efficiency and Social Interest A resource is efficient if it is not possible to make a person better off without making someone else worse off. For example, Apple sells iPhones to people all around the world but the conditions their laborers face in factories are far less than ideal. Equity is fairness, however “fairness” is subjective, especially among economists. Economic Ways of Thinking 1. A choice is a tradeoff a. On a Saturday night, will you stay home and study or go out and have fun? You must make a choice and every choice is a tradeoff. 2. People make rational choices by comparing benefits and costs a. Ideally, you’d make a rational choice. A rational choice is one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice. 3. Benefit is what you gain from something a. The benefit of something is the gain or pleasure that it brings and is determined by preferences- by what a person likes and dislikes and the intensity of those feelings. b. Economists measure this as the most you are willing to give up for something. 4. Cost is what you must give up to get something a. The opportunity cost of something is the highest valued alternative that must be given up to get it. Say Chipotle is giving out free burritos. Every student on campus goes to claim their free snack. In order to actually get the free burrito, you must spend one hour of your time waiting in line. Alternatively, you could go pay $7.00 for a burrito somewhere else and use your remaining time to be productive. 5. Most choices are “how-much” choices made at the margin a. You want to study and play video games, but you must decide how many minutes to allocate to each activity in an allotted period of time. You compare the benefit of a little more study time with its cost- you make your choice at the margin. 6. Choices respond to incentives a. A change in marginal cost or a change in marginal benefit changes the incentives that we face and leads us to change our choice. The central idea of economics is that we can predict how choices will change by looking at changes in incentives. Incentives are also the key to reconciling self-interest and the social interest. Economist as a Social Science Positive Statements: a statement about what is. It may be wrong, but economists can test it. For example: Higher interest rates will reduce house prices. This may be right or wrong, but economists can test it by checking it against facts and data. Normative Statements: a statement about what ought to be. You may agree or disagree with it, but you can’t check it. For Example: The U.S. unemployment rate should be lower. Unscrambling Cause and Effect: Economists like to use positive statements about cause and effect. They can check them using an economic model. Economic Model: a description of some aspect of the economic world that includes only those features that are needed for the purpose at hand. Economics as a Policy Advisor Economics is a toolkit for advising governments and businesses and for making personal decisions It can’t help with the normative part, that’s the policy goal, but it can help to clarify what the goals are.