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Competitive Markets for Goods and Services

by: Kerrigan Unter

Competitive Markets for Goods and Services ECON 1011

Marketplace > George Washington University > Economcs > ECON 1011 > Competitive Markets for Goods and Services
Kerrigan Unter
GPA 3.0
Foster, I

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Foster, I
Class Notes
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Popular in Economcs

This 3 page Class Notes was uploaded by Kerrigan Unter on Monday October 19, 2015. The Class Notes belongs to ECON 1011 at George Washington University taught by Foster, I in Summer 2015. Since its upload, it has received 18 views. For similar materials see INTRODUCTION TO MICROECONOMICS in Economcs at George Washington University.


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Date Created: 10/19/15
ECON 1011 Chapter 1 Economics The Study of Choice Defining Economics Economics a social science that examines how people choose among the alternatives available to them 11 Scarcity Choice and Cost Scarcity the condition of having to choose among alternatives Scarce good a good for which the choice of one alternative use of the good requires that another be given up Free good a good for which the choice of one use does not require that another be given up What should be produced How should goods and services be produced For Whom should goods and services be produced Opportunity cost the value of the best alternative forgone in making any choice The concept of opportunity cost must not be confused With the purchase price of an item The concepts of scarcity choice and opportunity cost are at the heart of economics The Field of Economics 2 The Economic Way of Thinking Economists study choices that scarcity requires us to make Three features distinguish the economic approach to choice from the approaches taken in other social sciences 1 Economists give special emphasis to the role of opportunity costs in their analysis of choices 2 Economists assume that individuals make choices that seek to maximize the value of some objective and that they de ne their objectives in terms of their own selfinterest 3 Individuals maximize by deciding Whether to do a little more or a little less of something Economists argue that individuals pay attention to the consequences of small changes in the levels of the activities they pursue Economists assume that individuals make choices that they expect Will create the maximum value of some objective o Margin the current level of an activity Think of it as the edge from which a choice is to be made 0 Choice at the margin a decision to do a little more or a little less of something 22 Microeconomics and Microeconomics o Microeconomics branch of economics that focuses on the choices made by individual decisionmaking units in the economy typically consumers and rms and the impacts those choices have on individual markets 0 Macroeconomics branch of economics that focuses on the impact of choices on the total or aggregate level of economic activity 0 Both microeconomics and macroeconomics give attention to individual markets But in microeconomics that attention is an end in itself in macroeconomics it is aimed at explaining the movement of major economic aggregates the level of total output the level of employment and the price level 23 Putting Economics to Work 0 Economists generally work in three types of organizations government agencies business rms and colleges and universities The Economists Tool Kit 0 Economics differs from other social sciences because of its emphasis on opportunity cost the assumption of maximization in terms of one s own selfinterest and the analysis of choices at the margin 0 Variable something whose value can change 0 Constant something whose value does not change 0 Scienti c method a systematic set of procedures through which knowledge is created In the scienti c method hypotheses are suggested and then tested 0 Hypothesis an assertion of a relationship between two or more variables that could be proven to be false 3 Models in Economics 0 Model set of simplifying assumptions about some aspect of the real world Models are always based on assumed conditions that are simpler than those of the real world assumptions that are necessarily false 32 Testing Hypotheses in Economics Ceteris paribus a Latin phrase that means all other things unchanged Dependent variable variable that responds to change Independent variable variable that induces a change Fallacy of false cause the incorrect assumption that one event causes another because the two events tend to occur together Positive statement statement of fact or a hypothesis Normative statement statement that makes a value judgment What is consider optimal


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