Lecture Notes: Weeks of 17-21, 24-28
Lecture Notes: Weeks of 17-21, 24-28 EC 2113
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This 4 page Class Notes was uploaded by Grey Garris on Saturday August 29, 2015. The Class Notes belongs to EC 2113 at Mississippi State University taught by Heriberto Gonzalez Lozano in Summer 2015. Since its upload, it has received 173 views. For similar materials see Principals of Macroeconomics in Economcs at Mississippi State University.
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Date Created: 08/29/15
EC 2113 Lecture Notes Weeks of August 1721 and 2328 Chapter 1 0 Economics The social science of determining the best use of scarce resources to achieve the maximum satisfaction of economic wants 0 Models Economic models are used to analyze situations to determine the best course of action often in graphical format Microeconomics Individual firmspeople Macroeconomics Total economy or an industry Positive Economics Factual statements Ex A rise in average temperatures will increase the demand for sunscreen productsquot 0 Normative Economics Statements that involve value judgements Ex Resources are best allocated by allowing the market mechanism to work freelyquot 0 Resources Four general resources Three have always existed while the fourth is relatively new I Land natural resources Ex minerals oil etc I Labor human work I Capital machinery I Entrepreneurship employs the other resources Involves innovation strategy risktaking Scarcity Basic Economising Problem trying to satisfy unlimited wants with limited resources Rational ln economics individuals are assumed to be rational by default Meaning that an individual will only do something with the understanding that the benefit of doing so is greater than the cost 0 Opportunity Cost Everything has a price When there are multiple options to take with a limited number of options that you can take whatever you choose still has a price in the things that you did not choose What you have to give up in order to get something elsequot 0 ln graphical analysis the opportunity cost can be found by determining the slope of the graph 0 Marginal Analysis 0 The basis for economic models Individuals make decisions progressively not all at once These decisions are made by the analysis of marginal cost versus marginal benefit I If the Marginal Cost of an actionchoice is greater than the Marginal Benefit a rational individual will not continue I If the Marginal Benefit is greater than or equal to the Marginal Cost a rational individual will agree to the action 0 Utility Happiness is used to measure whether a person will do something in economics the term utility is used as a way to measure happiness 0 Economic Principles 0 Graphical Analysis and Graphical Expression I Graphs are used to determine nearly every economic choice 0 Ceteris Paribus I Other things equalquot When analyzing a situation most economic models assume a freezeframequot of the situation This means that the model is accurate as long as a certain set of conditions is trueremains true 0 Production Possibilities Curve 0 Two axes are Consumer and Capital Goods The curve assumes full employment of resources a fixed amount of resources and a fixed level of technological advance Any change in these three factors results in a change in the curve O Constant Opportunity Cost Implies that resources used to produce capitalconsumer goods are perfectly exchangeable in use to produce the other Output of Go o d A EDD 160 ll 90 Output of39GDDd 13 Increasing Opportunity Cost Implies that the resources used to produce capitaconsumer goods are not perfectly exchangeable in use to produce the other 0 utput of Capital I22 I31 Output of Consumer Goods Economic Growth I Shown graphical by a shift in the curve economic growth can occur due to more resources better resources and improved technology This growth can occur simultaneously for both consumer and capital goods Production Possibilities Frontier i l l errMU p 392 Hanan Consumptions Goods I Or it can occur in a OneSectorquot fashion This occurs when the changes listed above only Motor vehicles Tl El Eh I 1 Food Eopyrigthl wwweonomic5wnlUnaGMG affect one of the types of goods 0 Unemployment and Unattainable Outputs 0 In the following model there are three points A B and C A represents a point in the Production Possibilities Curve that is attainable but does not use full employment of resources If full employment of resources were reached then the point B would be the current point at this point resources are being fully employed while still outputs are still attainable as the point lies along the curve Point C represents a desirable combination of resources but this point is not achievable under the current conditions as the curve would need to expand This point is unattainable within Butter 100 Production Possibility Frontier PPF I I I I GraphZ the current CeterIs ParIbus conditions 0 There are ways to reach point C It is possible to expand the curve with the economic growth factors It is also possible to achieve this point by international trade I Trade 0 International Trade can come in the form of countries specializing to produce products they are more readily disposed to create There are two key factors in the decision about what to specialize in Comparative and Absolute Advantage 0 Absolute Advantage If you can make more of something than another country you have absolute advantage in the production of that product 0 Comparative Advantage Actually used to determine who makes what This is an advantage of comparing opportunity costs 0 Example Problem If America can make 20 airplanes and 100 burgers at once and China can make 15 airplanes and 60 burgers at once who should make what ASSUME CONSTANT OPP COST I From the point of view of Absolute Advantage America should make both however that is not effective in the long run so Comparative advantage must be used I America s opportunity cost in making Airplanes is 5 burgers for every 1 Airplane And V5 of a plane for every burger China s opp cost for making planes is 4 burgers for every plane and 1A of a plane for every burger Using these values you can see that 5 burgers is more than 4 burgers and 5 of a plane is less than 1A of a plane so America should specialize in Burgers while China should specialize in Planes I Weird example sorry had to make that one up Chapter 2 0 Economic Systems A set of instituted arrangements and coordinating mechanisms that decide on the production and exchange of goods as well as the use of resources 0 Differences o Exist due to human ideological differences and economic pretenses mam m m gmw 393 l Lam33532 frame mmd a s WWDH r fgm N gv wm q Fmt G ovemMEW r Qemm m 9 ig f di m Qam mm m I 3mm 3 o This is as far as we got on Tuesday and Thursday was well different I ll update next week
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