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This 3 page One Day of Notes was uploaded by Brenna Castro on Monday September 8, 2014. The One Day of Notes belongs to a course at Arizona State University taught by a professor in Fall. Since its upload, it has received 66 views.
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Date Created: 09/08/14
Chapter 1 Economics the study of how human beings coordinate their wants and desires given the decision making mechanisms social customs and political realties of the society Coordination refers to how the three central problems facing any economy are solved o What and much to produce o How to produce it o For whom to produce it Scarcity the goods available are too few to satisfy individuals desires Our wants Our means of fulfilling those wants The degree of scarcity is always changing The quantity of goods services and useable resources depends on technology and human actions which underline production Scarcity is dealt with coercion limiting peoples wants and increasing the amount of work individuals are willing to do to fulfill those wants Microeconomics the study of how individual choice is in uenced by economic forces IndividuaIs How wages are determined in labor markets The pricing policies of firms Households decision on what to buy How markets allocate resources among alternative ends Macroeconomics the study of the economy as a whole It considers the problems of in ation unemployment business cycles and growth ex How household consumption is related to income and how government policies can affect growth WhoIe Economy Unemployment In ation Business cycles Growth Economic Reasoning To analyze everything critically they compare the costs and the benefits of every issue and make decisions based of those costs and benefits Abstracting from the unimportant elements of a question and focusing on the important ones by creating a simple model Steve Levitt s bestseller Freakonomics contains many examples of thinking like an economist Levitt uses economic reasoning to explain why people become drug dealers The potential financial benefit of selling drugs is much higher than the cost of giving up a minimum wage job TANSTAAFL There ain39t no such thing as a free lunch Marginal Costs The additional cost to you over and above the costs you have already incurred aka Incremental costs Sunk Costs Costs that have already been incurred and cannot be recovered Marginal Benefits The additional benefit above what you39ve already derived Using economic reasoning decisions are often made by comparing marginal costs and marginal benefits Economic Decision Rule If the marginal bene ts of doing something exceed the marginal cost do it If the marginal costs of doing something exceed the marginal bene ts don39t do it Opportunity Cost The benefit that you might have gained from choosing the next best alternative The basis of costbenefit economic reasoning Guns vs Butter Debate The resources that a society has are limited therefore its decision to use those resources to have more guns more weapons means that it will have less butter fewer consumer goods Economic Forces the necessary reactions to scarcity mechanism that ration scarce goods Market Force An economic force that is given relatively free rein by society to work through the market forces ration by changing prices Invisible Hand the price mechanism the rise and fall of prices that guides our actions in a market When an economic force operates through the market it becomes a market force Three forces that control economic reality Economic forces the invisible hand Social and cultural forces Political and legal forces Economic Insights Modern traditional economist use models that focus on traditional assumptions of rationality and self interest Modern behavioral economists modify traditional assumptions and are working on models that incorporate some predictably irrational behavior Economic Model is a framework that places the generalized insights of a theory in a more specific contextual setting Policymakers need to understand the empirical evidence supporting the theory as well as real world economic institutions corporation government social norms to make policy recommendations Economic Policies Actions or inactions take by government to in uence economic actions To carry out effectively one must understand how institutions corporation government social norms might change as a result of the economic policy Positive statements are all about what is normative statements are concerned with what the goals of the economy should be Economic theory proves nothing about what system is best It simply gives ways to look at systems and determine what the advantages and disadvantages of various systems will likely be Normative decisions about what is best can only follow from one s value judgments Theorem a proposition that is logically true based on the assumptions of the model Policy Precepts policy rules that conclude 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
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