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This 4 page Class Notes was uploaded by Keyshawn Gutkowski on Wednesday September 23, 2015. The Class Notes belongs to ECO 2314 at Texas State University taught by B. McClung in Fall. Since its upload, it has received 15 views. For similar materials see /class/212870/eco-2314-texas-state-university in Economcs at Texas State University.
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Date Created: 09/23/15
Microeconomics Thinking like an Economist When economists say there is no such thing as free lunch they mean that Answer Every choice we make involves atradeoff The concept of scarcity applies equally to Bill Gates and a homeless person because Answer There are only 24hrs in a day for the both of them People who have welldefined goals and try to fulfill those goals as best as they can are known as Answer Rational When someone makes a choice the value of the next best alternative not selected defines Answer Opportunity Costs Which of the following is true of the economic models and how they are used to study behavior Answer Economic models are simplifications of a given situation with the important details Sunk costs are when deciding between alternatives Answer Irrelevant Which of the following is NOT a synonym for marginal in economics Answer Average Economics is conventionally divided into two subjects called Answer quot 39 and 39 In deciding the number of students to allow to enroll in an economics course the Chairperson of the Economics Department is making a decision Answer Microeconomic Which of the following topics is most likely to be studied in microeconomics Answer The auto market Microeconomics Thinking like an Economist 3 Pitfalls t0 the Incentive Principle 1 N E The rst pitfall is the tendency for people to measure costs and bene ts as proportions rather than absolute values The correct way to measure bene ts and costs is to remember that net bene ts economic surplus are measured in dollars not percentages Example If it is worthwhile to take an action that saves you 10 then it is worthwhile when the list price of the item is 1000 a 1 savings or 20 a 50 savings The second pitfall is to ignore opportunity costs To accurately gauge the net bene ts of a decision one must recognize the alternatives and value them honestly Example The reason class attendance is nearly 100 on the day of the exam but noticeably less on lecture days is that the opportunity costs of skipping class on an exam day is much higher than the opportunity costs of skipping a lecture The third pitfall is the failure to think at the margin That is when a person is deciding whether or not to take an action the only costs and bene ts that are relevant are those that would occur as aresult of taking action Example Distinguish between average and marginal costs and bene ts Economics Study Guide Chapter 5 Profit is the difference between a firm39s total revenue and its total costs Profit Maximizing Firm39s choose an output level that makes this difference as large as possible 0 Most private firms have this as their main goal Perfectly Competitive Firm is a seller that operates in a perfectly competitive market PCM has four characteristics 0 All Firms sell a standardized product 0 The market has many buyers and sellers price takers 0 Factors of prod uction are mobile able to enter and leave the market at any time 0 Buyers and sellers are well informed Price Takershave no in uence over the price at which they exchange goods and services Factors of production are the resources that firms use to produce goods and services Fixed Factors of Production cannot be varied for a given period oftime while variable factors can be 0 EA farmer can choose how much fertilizer can but applied to a ZOOacre farm but once the 200 acres has bin planted the amount of land becomes a fixed factor since it cannot be varied until it is harvested Short Run is a period oftime during which at least one factor of production is fixed Long Run is a time period during which all factors of production are variable The Law of Diminishing Returns stats that as a firm employs more units ofa variable factor while keeping at least one factor fixed the additional output gained will be progressively smaller Fixed Costs is the sum of all costs associated with fixed factors of production Variable Costs are the sum of all costs associated with variable factors of production Total Costs equals fixed costs plus variable costs Economics Study Guide Chapter 5 I Marginal Cost is the additional total cost incurred when output increases by one unit 0 Eilfa farmer spends 200 to produce another 100 bushels than the marginal coast of each bushels is 2 I Producer Surplus measures the dollar value ofthe benefit sellers receive from selling a good at the market price