Econ 201 Week 2 Notes
Econ 201 Week 2 Notes ECON 201
Popular in Micro Economics
Popular in Microeconomics
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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