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ECO2023 WEEK 1 CH 1-2

by: Sarah Rinehart

ECO2023 WEEK 1 CH 1-2 ECO2023

Marketplace > University of Florida > ECO2023 > ECO2023 WEEK 1 CH 1 2
Sarah Rinehart
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These notes incorporate material from the lectures as well as material from the textbook (chapters 1-2).
Principles of Microeconomics
Class Notes
PPF, Economics, markets




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This 6 page Class Notes was uploaded by Sarah Rinehart on Thursday September 8, 2016. The Class Notes belongs to ECO2023 at University of Florida taught by Rush,Mark in Fall 2016. Since its upload, it has received 5 views.


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Date Created: 09/08/16
ECO2023 CH 1 Economics Key  Indiv = individual  Prop = property  Gov = government  Edu = education  g/s = goods/services  OC = Opportunity Cost  Economics: social science that studies choices that indiv, businesses, gov, and entire societies make as they cope with scarcity and incentives that influence those choices  Scarcity: inability to get everything we want  Incentive: reward that encourages an action or penalty that discourages one  Microeconomics: study of indiv firms, consumers, and markets w/in the economy  Macro: study of overall economy  Big Questions 1. What goods/services will be produced? In what quantities? 2. How will goods/services be produced? 3. Who are the goods/services for?  Methods of organizing an economy 1. Traditional: this year’s answers = same as last year’s answers 2. Command: gov planners determine answers and create plans for producers a. Ex. N Korea, Cuba, FSU 3. Capitalism: Markets, prices, prop. Rights a. Markets: any arrangement that allows buyers/sellers to transact their business b. Prop rights: socially determined legal rights that govern the use of/ disposal of prop. i. Prop: anything you own. (labor, land, etc.) 4. Mixed Economy: all economies contain a mix of the above methods  Factors of Production: Resources and Technology  Labor  Quality of labor depends on human capital knowledge and skill that people obtain from edu, experience.)  Capital  Tools, machines, buildings, etc used to produce g/s  Financial capital is NOT a factor of production  Land: all natural resources  Entrepreneurship  Do choices made in pursuit of self-interest also promote social interest? o Globalization: expansion of international trade, borrowing, lending, and investment o Info age monopolies  In the absence of competition Microsoft sold Windows at a really high price o Climate Change o Financial Instability Economic way of thinking o A choice is a tradeoff  Tradeoff: exchange; what you give up to get something o People make rational choices by comparing benefits and costs  Rational choice: choice that compares costs and benefits and achieves the greatest benefit over cost o Benefit: what you gain from something  Determined by preferences o Cost: what you must give up to get something  OC: highest valued alternative that must be given up to get what you want o Most choices are made at the margin  Marginal benefit: benefit that arises from an increase in an activity  Marginal cost: the OC of an increase in an activity o Choices respond to incentives Economics as a Social Science and Policy Tool  Economics as a social science o Positive statements: descriptive o Normative statements: prescriptive  Policy goals o Unscrambling cause and effect  Economists create an economic model to answer questions about cause and effect  Economic model: description of some aspect of the economic world that includes only those features needed for purpose at hand ECO2023 CH 2 The Economic Problem Key  PPF = Production Possibilities  Bw = between Frontier  g/s = goods/services  Bc = because  # = quantity  OC = Opportunity Cost  Tech = technology  Adv = advantages  Ea = each Figures refer to figures in the textbook. Examples refer to the lecture and additional examples from review books. Production Possibilities Frontier (PPF) Helps illustrate the “what?” and “how?” questions  Limits to production (see PPF Ex. 1,2)  Points on PPF = attainable by maximizing efficiency  Points beyond PPF = unattainable  Points within PPF = attainable but production inefficient  Opportunity cost: what you give up to get something  OC = loss/gain  PPF shows the max combo of goods/services that can be produced  shows us the limits to what we can produce Production Possibilities and OC  PPF: boundary bw those combos of g/s that can be produced and those that cannot o Fig. 2.1 PPF for cola and pizza shows the limits to the production of each good, given total resources/technology available to produce them  Illustrates scarcity bc points outside frontier are unattainable Using Resources Efficiently  We achieve production efficiency at every point on the PPF  Allocative Efficiency: when g/s are produced @ lowest possible cost and in the quantities that provide the greatest possible benefit  PPF and marginal cost o Marginal cost: OC of producing one additional unit of a good  Calculate from slope of PPF  Figs. 2.1, 2.2 as the # of pizzas produced increases, the marginal cost of a pizza increases  Preferences and Marginal Benefit o Marginal benefit: benefit received from consuming an additional unit of a g/s  Depends on preferences: peoples likes/dislikes + intensity of those feelings o Marginal benefit curve: curve that shows the relationship bw the marginal benefit from a good and the # consumed of that good  Unrelated from PPF - cannot be derived from it o We measure the marginal benefit from a g/s by the most that people are willing to pay for an additional unit  Principle of decreasing marginal benefit Economic Growth  Economic growth: expansion of production possibilities o Increases our standard of living. Doesn’t overcome scarcity or avoid opportunity cost o Comes from tech change and capital accumulation  The Cost of Economic Growth o Tech change: development of new goods and better ways of producing g/s o Capital accumulation: growth of capital resources, including human capital Gains from Trade  Specialization: producing only one good or a few goods  Comparative adv and absolute adv o Comparative adv: person’s ability to produce a particular good w/ a lower OC than someone else  Comparing OC o Absolute adv: person’s ability to produce a particular good more efficiently  Comparing productivities (production/hr)  Tables 2.1, 2.2 and fig. 2.6 Economic Coordination  Decentralized coordination involves o Firms, markets, prop. Rights, money  Firms: economic unit that hires factors of production and organizes them to produce/sell g/s  Markets: any arrangement that enables buyers and sellers to get info and do business with ea other  Prop rights: social arrangements that govern the ownership, use, and disposals of anything that people value o Real prop: land and buildings o Financial prop: stocks, bonds, and money in the bank o Intellectual prop: intangible product of creative effort  Includes books, music, computer programs, and inventions that are protected by copyrights and patents  Money: any commodity or token that is generally acceptable as a means of payment  Circular Flows Through Markets o Fig. 2.8


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