Popular in Principles of Economics: Microeconomics
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This 3 page Class Notes was uploaded by Summer Notetaker on Monday October 12, 2015. The Class Notes belongs to Econ 101 at Washington State University taught by Dr. Love in Summer 2015. Since its upload, it has received 69 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Washington State University.
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Date Created: 10/12/15
Microeconomic Microeconomics is based on Choices 1 Choices are necessary because resources are scarce Resources Anything that can be used to produce something else Scarce In short supply a resource is scarce when there is not enough of the resource available to satisfy all te various ways a society wants to use it 2 The true cost of something is the opportunity cost Opportunity cost what must be given up in order to get something 0 Not just monetary cost Ex you give up the opportunity for a full time job in order to go to college 3 quothow much is a decision at the margin Tradeoff Comparison of the cost and bene ts of doing something Ex what money you could make up doesn39t compare to the money you make with a degree 0 Each bite of the candy bar has costs and bene ts Marginal decision Decisions made at the margin of an activity about whether to do a bit more or a bit less of that activity Marginal analysis The study of Marginal decisions Incentive Anything that offers reward to people who change their behavior Choose to consume the amount so that marginal bene t of consumption equals marginal cost 4 People usually respond to incentives exploring opportunities to make themselves beter off Ex sales Ex 2 we pay waiters more if they are more attentive 5 There are gains from trade 0 Trade allows us all to consume more than we otherwise could Specializations The situation in which each person specializes in the task he or she is good at performing Specialization increases overall production 6 Most markets tend to move toward equilibrium Equilibrium an economic situation in which no individual would be better off doing something Ex Lane speeds reach equilibrium quickly as people respond to incentives a ticket for speeding 7 Resources should be used ef ciently to achieve societies goals Ef cient Taking all opportunities to make some people better off without making other people worse off Equity A condition in which everyone gets his or her quotfair sharequot 0 Equity and ef ciency are often at odds 8 Markets usually lead to ef ciency 0 People normally take opportunities for mutual gain 9 When markets don39t achieve ef ciency government intervention can improve society s welfare 0 Sometimes markets fail and need correction 100ne person39s spending is another person39s income Production and trade in an economy can be represented by the circular flow diagram money ehol money goos an services factors mares Markets goods and facto services money Fir During recessions a drop In usnness ending leads to Less income Less spending And a further drop in business spending layoffs and rising unemployment money 110verall spending sometimes gets out of line with the economy39s productive capac y 12Government policies can change spending An increase in spending leads to an increase in jobs in the economy a True b False