MICRO ECON chapter 1
MICRO ECON chapter 1 ECON 1102
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This 3 page Class Notes was uploaded by Tori Busa on Wednesday September 14, 2016. The Class Notes belongs to ECON 1102 at Temple University taught by in Fall 2016. Since its upload, it has received 8 views. For similar materials see Microeconomic Principles in Economics at Temple University.
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Date Created: 09/14/16
Microeconomics Chapter 1: Thinking like an Economist Economics is the study of how human beings coordinate their wants and desires, given the decision making mechanism, social customs, and political realities of the society. Economics is a social science based on descriptive analysis of the production distribution and consumption of mankind. Economics is the study of hoe men in society choose when or without the use of many to employ scarcity with adapted resources to produce various commodity overtime and distribute them for consumption now and in the future among groups of society. Three essential questions 1. What to produce 2. How to produce it 3. For whom to produce Scarcity means the goods available are too few to satisfy individuals’ desires. Individuals want more than can be produced. The quantity of goods, services and usable resources depends on technology and human action. Modern economists are based on deduction and induction 1. Deduction is a method of reasoning in which one deduces a theory based on a set of almost self-evident principles 2. Induction is a method of reasoning in which one develops general principles by looking for patterns in data 3. Abduction is the combination of deduction and induction Decisions are often made by comparing marginal costs and marginal benefits 1. Marginal cost is the additional cost over above costs already incurred 2. Marginal benefit is the additional benefit above and beyond what has already accrued 3. MB > MC = DO IT 4. MC > MB = DO NOT DO IT Opportunity Cost should always be less than the benefit of what you have chosen 1. Individual decisions Items you could have purchased with the money spent on books 2. Government decisions Cost spent more on war on terrorism is less spending on health care or education Economic forces are mechanisms that ration scarce goods Market forces are economic force that is given relatively free rein by society to work through market. (social, cultural, political) Microeconomics Invisible hand is the price mechanism 1. Shortage=prices rise. QD>QS 2. Surplus= prices fall. QS>QD Economic terminology 1. Economic model- framework of the insights of the theory in contextual setting 2. Economic principle- stated as a law 3. Theorems- propositions that are logically true 4. Precepts- policy rules that action is preferable 5. Efficiency- achieving a goal as cheaply as possible 6. A theorem is a proposition that is logically true based on the assumptions of the model, while a precept is a policy rule that a particular course of action is preferable. Economists can agree about theorems but disagree about precepts if they have different value judgments about appropriate goals. Macro-whole economy Micro- individual choice -inflation -pricing policy firms -unemployment -household decisions -economic growth -how markets allocate resources Objective policy= policy analysis keeps value judgements separate from analysis 1. Positive economic- what is 2. Normative economic- what should be 3. Art of economics- use positive to achieve goals of normative Subjective policy= policy analysis reflects the analysis views of how things should be SUMMARY Three coordination problems are what to produce, how to produce it, and for whom to produce it Scarcity exists Modern economists use abduction Economic reasoning structures all questions in a cost/benefit framework Opportunity costs exist Economic, political, and social forces are always at work Under certain conditions, the market, through the price mechanism, will allocate scarce resources efficiently Economics is divided into micro and macroeconomics Precepts are the guides for policies based on theorem Economics can be subdivided into positive economics, normative economics, and the art of economics Microeconomics