PRIN MICROECONOMICS ECON 2000
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This 15 page Class Notes was uploaded by Bethany Conn on Tuesday October 13, 2015. The Class Notes belongs to ECON 2000 at Louisiana State University taught by S. Filiz in Fall. Since its upload, it has received 7 views. For similar materials see /class/223026/econ-2000-louisiana-state-university in Economcs at Louisiana State University.
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Date Created: 10/13/15
ECON 2000 Chapter 2 652012 51700 PM 2 Main Points Comparative Advantage and Production Possibilities Frontier 1 Lesser Point Economic Systems 3 Questions o 1 What gets produced o 2 How is it produced o 3 Who gets what s produced Resources 9 Production 9 Goods Resources o Time Natural Resources Production o Function of Capital Labor Land and Technology o Factors of Production 0 Capital K good that are used to produce other goods Goods that aren t consumed today Labor L work done by people Land Z used in agriculture not to important now Technology A blueprint of how to use other factors of production Y fKLZA O O O In an economy all goods that are consumed must be produced o 9 Consumption fProduction o ex Consider Bill who is stranded on an island 0 All good Bill consumes must be produced by Bill ex coconuts fish etc o This idea holds for longs more complicated societies 0 The production of goods changes Individuals Specialize 9 Increased Production Trade takes place 9 Increased Consumption How do Individuals choose what to produce o By having a comparative advantage in production o Comparative Advantage occurs if an individual has a lower opportunity cost in producing a good EX Tina Can produce 5 lbs of wool or 10 lbs of meat in one day James Can produce 2 lbs of wool or 5 lbs of meat in one day Absolute Advantage o And individual has an absolute advantage if heshe can produce more with a fixed amount of resources o Tina has the Absolute Advantage AA in wool and meat o Should Tina trade with James 0 Yes if James has a Comparative Advantage CA either in meat or wool Opportunity Cost OC o Tina o 1 day 5 wool o 1 day 10 meat 0 9 10 meat 5 wool o James 0 1 day 2 wool o 1 day 5 meat 0 9 5 meat 2 wool How much wool will they give up 0C for every unit of meat o 1 meat 3 wool Tina o 1 meat 4 wool James Tina has lower 0C for producing meat 9 CA in meat OC of wool o 1 wool 333 meat Tina o 1 wool 25 meat James James has a lower OC in producing wool 9 CA in wool James will produce only wool Tina only meat 9 They Trade Improvement from Trade No Trade o Tina consumes 1 wool 6667 meat o James consumes 1 wool 25 meat With Trade o Tina produces 10 meat o James produces 2 wool Trade 1 wool for 3 meat o Tina consumes 1 wool 7 meat o James consumes 1 wool 3 meat Graphing Production Possibilities o Tina 10 meat or 3 wool Negative Relationship o meat production increases if wool production increases o tradeoff With no trade Tina cannot produce at a point beyond the Production Possibilities PP Curve With trade Tina s consumption can exceed the PP curve o A trade with James Production Possibilities Frontier c Total production possibilities for an entire society 0 Aggregation of individual Production Possibilities 0 Shape differs slightly Tangent Capital Goods sacrificing consumption today for greater consumption tomorrow Investment saving paying for capital goods 1 Shape o some segments of the economy are better at producing butter others guns c As we produce more and more guns we encroach on the butter segments 0 Butter segments good at producing butter bad at producing guns give up large amount of butter for guns 9 OC of guns increases as gun production increases Marginal Rate of Transformation o The slope of the PPF o This slope isn t constant c Measures changing OC 2 Efficiency o use all resources 9produce at a point on the PPF 652012 51700 PM 652012 51700 PM ECON 2000 Chapter 3 682012 50900 PM Shift Factors of Demand 1 Income Wealth o income periodic earnings 0 a flow o wealth accumulated worth 0 a stock The effect of income on D depends on the good Consider movies and ramen noodles normal good is a good that you buy more of when income increases ex Movies o increased incomes 9 increase QAd inferior good is a good that you buy more of when income decreases ex Ramen noodles o decreased income increased Quantity Demand at every P 9 increased demand o negative relationship between income and demand 2 Price of Other Goods o If goods are related a price change in one affects quantity demand QAD for the other 0 This affect depends on the relationship o Consider hot dogs amp buns and coke ampPepsi o Goods are complements if a price increase in one good results in a decrease in demand D for the other 0 Ex hot dogs amp buns EX o If P of hotdogs HD s increase edecrease quantity demand of buns at every P of buns edecrease demand for buns o Goods are substitutes if a price increase in one results in increased D for the other 0 Ex generics vs name brands o If Price of Kraft Mac and Cheese increases increased quantity demand for Great value mac and cheese at every P increased demand for Great value mac and cheese 3 Taste and Preferences o what consumers want 0 Ex LSU vs Towson and LSU vs Alabama o Something other than P that leads to difference in quantity demand 4 Expectations o In the future o If people expect P to rise tomorrow then buy more increased Quantity Demand today 9 Increased Demand Ex You get an internship 9increased expected income atreat as increased income 682012 50900 PM 682012 50900 PM ECON 2000 Chapter 1 652012 45900 PM Economics the study of our scarce resources and how we use them o scarce limited o ex diamonds time water everything Definitions Opportunity Cost o What is forgone from choosing something o ex come to class 0 OC don t sleep in o ex Summer School 683 0 OC used jet ski Marginalism o make choices at the margin c or effect or one more or something o added benefitcost of one more cookie or worker Market o interaction between buyers and sellers of a good o produce greatest benefit from good Efficient Markets o easily exploited profits are quickly eliminated o businesses fill niches Why Study Economics c To learn a way of thinking Micro c To understand society Macro c To understand global affairs c To be an informed citizen Scope of Economics o Micro deals with individuals firms and industries 0 ex Should Jane buy a car 0 ex What happens to the profit of oranges if a late frost occurs o Macro deals with countries or entire economics 0 ex What is inflation in the EU 0 ex How are Output Y and Employment related in the US Table 12 list of subfields Method of Economics positive correlates to facts o no judgments study what happens o ex relationship between output and employment normative correlates to opinions o evaluate policy Ex Are people better off with Obama care 2 Types of Economics 1 Theory 0 Mathematical modeling of the relationship between variables Variable a measure that changes 2 Empirics 0 Test theories with data 0 Statistical relationships Random Definition o Ceteris Parabus CP holding everything else constant ex How does output effect employment holding constant inflation work force participation etc Economics studies relationships Correlation does not equal Causation o Just because two events happened does not mean it was caused by the other Does education increase wages o Could be that ability is associated with both o Higher ability increases higher education which increases wages Economic Policy Influences o Efficiency low costs of production o Equity fairness o Growth increase in the amount of stuff o Stability low fluctuations in Price and Output Graphing show the relationships between two variables positive relationship o if x increases then y increases negative relationship o if x increases then y decreases 652012 45900 PM 652012 45900 PM
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