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Notes on Lecture 1

by: Paige Peterson

Notes on Lecture 1 ECON 2105

Paige Peterson
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About this Document

Bullet points and notes on Lecture 1. Covers chapter 1 of textbook. Includes all Key words and a lecture summary at the end.
Economics in a Global Society
Bill Yang
Class Notes
Introtomacroeconomics, Macroeconomics, Economics




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This 3 page Class Notes was uploaded by Paige Peterson on Monday August 22, 2016. The Class Notes belongs to ECON 2105 at Georgia Southern University taught by Bill Yang in Fall 2016. Since its upload, it has received 6 views. For similar materials see Economics in a Global Society in Economics at Georgia Southern University.


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Date Created: 08/22/16
Lecture 1: Chapter 1: Foundations and Models  What does Economics Study? o Examples-  How do you choose your career?  Why are textbooks more and more expensive?  How do firms set prices?  What does “jobless recovery” mean?  How does biofuel program affect the price of meat? o Economics studies WWW:  What to produce (and how much)  What resources to use? (how to produce?)  Who works? (who earns?) o Generally, economics studies:  How to allocate scarce resources; Or  How to make a choice under scarcity(Want>Have) o Two Types of Economies  Centrally-planned economy: government decide WWW  Former Soviet Union, China before 1978, Romania  Market economy: Individuals decide WWW  US, Many western economies  Market: a group of buyers and seller of a certain service or good  Most real world economies are actually mixed  How do Economists Work? o Use economic models to analyze real-world topics in steps  1. Observations (See and address questions)  2. Theories (explain how and why)  3. More observations (test theories, ie double check) o What is economic model?  Examples: Map, street directory,  Model: simplified version of reality  Graph/diagram, equations o To simplify real world, assumptions have to be made  People are rational  Market is competitive o Testability: good models generate testable predictions, which can be verified or disproven using data  Three key economic ideas o 1.People are rational (assumption)  Rational- to achieve your goals by using all available information o 2.People respond to incentives (decision/choice)  Benefit vs Cost  Incentive: a link between a decision/action and its outcomes o 3. Optimal decisions are made at the margin  How many hours should you spend on watching tv (total)  Should you watch an extra hour of TV, or study instead? (Marginal)  Economists make such decisions bu comparing the marginal cost with benefit  Marginal rule:  If the additional cost is less than the benefit, you will take the additional time  If the marginal benefit cannot cover marginal cost, you will reduce the extra amount of action  This is called marginal analysis  Microeconomics and Macroeconomics o Microeconomics  How individuals make choices  How they interact in markets  How the government can influence their choices  By using individual variables (price, quantity, ect.) o Macroeconomics  Studies the economy as a whole (the behavior of the 5 aggregate variables)  1. GDP- econ growth, business cycle;  2. CPI- inflation; (consumer Price Index)  3. U-rate- unemployment rate  4. I-rate- Interest rate  5. Ex-rate- exchange rate o Positive Statement- Whenever inflation goes up, the unemployment rate goes down (observation/fact) o Normative statement- I really hate inflation, since it makes me poorer in terms of purchasing power (opinion) o Positive analysis: the study of ‘What is?’ And ‘What if?’ o Normative analysis: study of ‘what ought to be?’  Common misconceptions to avoid o Economics is only about making money  More like a science than a business o Confusion between positive and normative analysis  Positive- fact, normative- opinion o Assuming familiar meanings for economic terms  Capital means money in everyday use, in economics means machine, tools  Investment- stock, bonds (everyday language), Plant, machine (economics language)  Money-income wage (everyday), cash and bank deposits (economics)  SUMMARY:  Economics studies how to allocate scarce resources. o Studies WWW (What, How, Who?)  Economists use models to explain the real world o 3 basic ideas  People are rational  People respond to incentives  People make decision on the margin  Economics is classified into: o Micro vs Macro o Positive vs Normative Analysis


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