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Econ 201 Week 2 Notes

by: Samantha Shea

Econ 201 Week 2 Notes ECON 201

Samantha Shea

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These notes cover what was discussed in class about chapter 1.
Micro Economics
Professor Liedholm
Class Notes
Microeconomic, Lecture Notes
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This 3 page Class Notes was uploaded by Samantha Shea on Wednesday September 7, 2016. The Class Notes belongs to ECON 201 at Michigan State University taught by Professor Liedholm in Fall 2016. Since its upload, it has received 66 views. For similar materials see Micro Economics in Microeconomics at Michigan State University.


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Date Created: 09/07/16
Lecture  2 Wednesday,  September   7,  20112:40  PM Basic  Economic  Is-­‐ • Society  Manages  Scarce  Resources • Society-­‐ households,  business  firms,  government ○ Almost  unlimited  wants • Manages ○ Choose   ○ Choice § What  we  do  with  scarce  resources • Scarce  resources ○ Resources-­‐ things  societies  have § Human  (labor) § Natural  (coal,  iron,  land) § Manufactured  (physical  capital,  produced  by  society,  tool) □ Resources  are  scarce □ Resources  are  not  free • Economics ○ Science  of  choice • Time   ○ Scarce  resource Factors  in  decision  making,  or  Making  Choices 1. People  face  trade-­‐offs ○ Pleasure  and  pain  involved ○ Make  sure  good  outweighs  the  bad 2. Opportunity  Cost ○ Whatever  must  be  given  up ○ Ex:  You  have  100  gallons  of  milk  so  you  can  make  90  gallons  of  ice  cream   or  99  gallons  of  pasteurized  milk. § You  have  to  make  a  choice  between  the  two § You  get  one  or  the  other 3. Making  decisions  at  the  margin ○ Margin  means  small ○ One  more  of  something  not  thousands  more/  one  less  of  something ○ Compare:   Marginal  benefit   Marginal  Cost Marginal  benefit           Marginal  Cost      > ○ Margin  means  small ○ One  more  of  something  not  thousands  more/  one  less  of  something ○ Compare:   Marginal  benefit   Marginal  Cost Marginal  benefit           Marginal  Cost      > Marginal  benefit           Marginal  Cost      < 4. People  respond  to  incentives ○ Ex.  Notebook  computer  cover § $49.99  at  the  Computer  Store  MSU § $34.99  at  Best  Buy  in  Okemos ○ MAC  BOOK  LAPTOP  Pro  15" § $2000  at  Computer  Store  MSU § $1985  at  Best  Buy  in  Okemos □ $15  difference  is  "sticker"  price  in  both  situations □ Result:  benefits are  the  same,  but  the  costs  are  different □ Hidden  costs:  transportation,  time   An  Economic  Model The  Production  Possibility  Frontier  (PPF):  shows  the  maximum  amount  of  a   good  you  can  produce  given  the  amounts  of  other  goods  produced,  and  given   the  total  amount  of  inputs  available,  and  given  the  technology  of  production • Purposes  of  model ○ Show  the  scarcity ○ Illustrate  economic  efficiency ○ Introduce  opportunity  cost  concept • Variables ○ Quantities  of  goods  that  may  be  produced • Assume  (given) ○ Total  amounts  of  inputs  (resources)  available ○ Technology  of  production • PPF  EXAMPLE ○ Assumptions:   § there  are  only  two  goods,  Coke  and  MSU  flags § There  are  limited  inputs  and  given  technology  of  production • Efficiency   ○ Points  on  the  PPF  are:  efficient § Opportunity  cost   ○ Represents  maximum  that  can  be  produced   ○ Points  beyond  frontier=  UNATAINABLE   ○ Inefficiency:  points  inside  the  PPF  are:  ATTAINABLE  &  INEFFICIENT § No  opportunity  cost • Increasing  opportunity  cost ○ Opportunity  costs  increase  as  more  of  a  good  is  produced ○ Reason:  resources  are  not  perfect  substitutes  for  each  other ○ Points  beyond  frontier=  UNATAINABLE   ○ Inefficiency:  points  inside  the  PPF  are:  ATTAINABLE  &  INEFFICIENT § No  opportunity  cost • Increasing  opportunity  cost ○ Opportunity  costs  increase  as  more  of  a  good  is  produced ○ Reason:  resources  are  not  perfect  substitutes  for  each  other


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