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Week 2 Microeconomics Notes

by: Megan Spees

Week 2 Microeconomics Notes ECON 110 - 04

Marketplace > University of Indianapolis > Economcs > ECON 110 - 04 > Week 2 Microeconomics Notes
Megan Spees
GPA 3.54
Timothy E Zimmer

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About this Document

These notes go over trade, absolute and comparative advantage, the PPF, economic growth, the circular-flow diagram, factors of production and private property rights among other things. Detailed e...
Timothy E Zimmer
Class Notes
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This 9 page Class Notes was uploaded by Megan Spees on Saturday September 12, 2015. The Class Notes belongs to ECON 110 - 04 at University of Indianapolis taught by Timothy E Zimmer in Fall 2015. Since its upload, it has received 46 views. For similar materials see Microeconomics in Economcs at University of Indianapolis.


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Date Created: 09/12/15
Week 2 for Microeconomics Notes for week 2 of Microeconomics 9 September 2015 Scarcity unlimited wants exceeding limited resources Factors of Production Workers Capital Natural resources Trade Most trade is local Benefits of trade gt specialization more on this later Specialization gt efficient output production Production Possibilities Frontier a curve which shows the maximum attainable combinations of two products that can be produced with the available resources and current technology Week 2 for Microeconomics r r This is a production possibilities frontier showing the production of toothbrushes and toothpaste All of the points on the line ABCDE are all obtainable With the current resources available point G is impossible Point F is possible however it is inefficient because not all of the resources are being u Hzed Here opportunity cost is important Week 2 for Microeconomics Opportunity Cost the highest valued alternative that must be sacrificed in order to engage in an activity As the economy goes down the PPF its marginal opportunity cost increases when devoting additional resources Week 2 for Microeconomics E ECW q OWN14 WWW LN 6L0 U C01 39 313quot HUD 0 t 39 n D K LL70 mg PMquot U M 9mm any you 1 Eli oomcvm ltva W 10 JUN qr QLhmm05 x gum 7C v nuyw V f CCachcg y C 1 Q Cm HCNCUM M39h 39 TLMZ IJK39 an b me if 5 m I A a 11 C L 39xV39CKV39b 31mph um RWY 4 CM omnu C U W Week 2 for Microeconomics Decreases in the PPF can happen but they usually dont happen natural disasters can cause a decrease 11 September 2015 Trade What is trade Really it s just the actual act of buying and selling things Trade makes it possible for people to benefit by increasing both their production and consumption So let s go through an example that covers trade specialization the gains from trade absolute and comparative advantage and opportunity cost then definitions of these items will follow the example Week 2 for Microeconomics 1320 Wq auawun quot WW1quot quot WWW y VOWquot Wk rmsz iremm lach Oprwwvvmm N TTWNAWPUIUWO WWW amp WMiWe 39 v Mn V v vow MSWH 0 M WM WWW 12m ew1g pm W ngh ouv wk 9W0 quot m Nos mSu u o Y 39L lt r Mag0 okxog U W aw Nb 0m 2H 0 U0 Umquot WY NASMW Y aJ 17 h yp mANJQMmN NP 7 0mm xduan W W I W x P L a 39 A V W U 94 W X 0 M M Ml WW h tom 1 0m v 74 1 awn 39 W W were nor J W n h W h W or m LIgt W m Warn 539 pMUBh 0 5 Wtw evt LA WW emouaxma cdwwhL 39 WI de WI WM Y0 u Hum HawWW W 0mm squot W WW Hb com I 0 WW 1 A I quot Y39sL ND 05 cr 3 400 m NM WWW PW h adc 943 U 0 U mom nummr DIWO wm 0 c M Tfmd 0 K 0 I j 3 mom m mVNW 391 3 gtG o39v VM W4 3 w WM V Week 2 for Microeconomics Say you and your neighbor both have corn and bean fields If you spend all of your time picking corn you can pick 20 lbs of com If you spend all of that time on beans you can pick 20 pounds of beans Your neighbor can spend all of their time picking corn and pick 30 lbs of corn They can spend all their time picking beans and pick 60 lbs of beans If you trade with your neighbor you can produce and consume 8 lbs of corn and 12 lbs of beans If you trade with your neighbor you can produce 20 lbs of corn and 0 lbs of beans With trade you can consume 10 lbs of corn and 15 pounds of beans So you gain 2 lbs of corn and 3 pounds of beans Your neighbor with trade can produce and consume 9 lbs of corn and 42 lbs of beans With trade they can produce 60 lbs of beans and 0 lbs of corn With trade your neighbor can consume 10 lbs of corn and 45 lbs of beans Their gains of trade consist of 1 lb of corn and 3 lb of beans Both of you benefit from trade and specialization Absolute vs Comparative advantage Absolute advantage is the ability to produce more than your competitors using the same amount of resources Comparative advantage is the ability to produce at a lower opportunity cost than the competition Opportunity cost is the highest valued alternative that must be given up in order to keep doing an activity Who has the absolute and comparative advantage and what is the opportunity cost in this example Your neighbor has the absolute advantage over you when it comes to corn but you have the comparative advantage Your neighbor has both the absolute and comparative advantage over you when it comes to picking beans The opportunity cost for you to pick one pound of corn is one pound of beans For your neighbor it is 2 pounds of beans The opportunity cost for picking one pound of beans is one pound of corn for you for your neighbor it is 05 pounds of corn The one part that differentiates absolute advantage from comparative advantage is that for comparative advantage there is an opportunity cost Week 2 for Microeconomics THE BASIS OF TRADE IS COMPARATIVE ADVANTAGE Circularflow diagram shows how participants in markets are linked the main point of this diagram is to show that it is always the same money going around Everything you do is going to effect everything else because it is all the same money this is sometimes called unintended consequences Product markets markets for goods and services demandhouseholds suppliersfirms Factor markets markets for factors of production labor capital natural resources entrepreneurer Households suppliers of factors of production own all firms Factorsuppliers Firmsdemanders Firms Supply goods and services PriceL information Provides information to the market Week 2 for Microeconomics How valuable something is relative to something else Entrepreneurship Entrepreneurs are people who operate a business Must have entrepreneurs Give people what they didn39t even know they want yet Property rights the rights that entities have to the exclusive use of their property includes the right to buy or sell it ESSENTIAL ECONOMY WILL SUFFER IF YOU DON T HAVE THEM


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