PRIN OF ECONOMICS
PRIN OF ECONOMICS ECON 203
Popular in Course
Popular in Economcs
This 6 page Class Notes was uploaded by Mr. Tito Legros on Wednesday October 21, 2015. The Class Notes belongs to ECON 203 at Texas A&M University taught by Michael Nelson in Fall. Since its upload, it has received 12 views. For similar materials see /class/225828/econ-203-texas-a-m-university in Economcs at Texas A&M University.
Reviews for PRIN OF ECONOMICS
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/21/15
Economics Models and Foundations 39 I l A Introductory Concegts I Scarcity means I Resources are scarce but human wants are I Scare resources and unlimited wants imply the need to make I Economics The study of the choices people make to attain their goals given their scarce resources I Most economic events occur markets Markets involve Three Key Economic PrinciQIes I People are rational I People respond to economic incentives I Optimal decisions are made at the margin 39 i The Economic Problem That Every Society Must Solve I Resources are limited and desires are unlimited so society faces tradeoffs I How to evaluate tradeoffs Compare the benefits of an activity to the opportunity cost of the activity Opportunity cost The highestvalued alternative that must be given up to engage in an activity Examples What is the opportunity cost of going to an Aggie basketball game What is the opportunity cost of coming to class today What is the opportunity cost of one semester of college Suppose you are given a free ticket to the Aggie basketball game vs tu You can sell the ticket on Stubhub for 220 What is your opportunity cost of attending the game I The existence of opportunity cost implies that there is no such thing as a Why can t a lunch be free Societies face three basic guestions involving tradeoffs 1 What to produce 2 How to produce 39 3 Forwhomto produce In centrally planned economies the government makes above decisions In market economies who makes these decisions Most economies in the world today are mixed economies both central planning and market forces are at work 39 i The equityefficiency tradeoff Productive efficiency The situation in which a good or service is produced at the lowest possible cost Allocative efficiency A state of the economy in which production is in accordance with consumer preferences in particular every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it Market systems tend to provide productive efficiency Why Market systems also tend to provide allocative efficiency Why 39 1 Equity The fair distribution of economic benefits There is often a tradeoff between equity and efficiency Examples Unemployment compensation Flat tax vs Progressive Tax 39 1 Positive vs Normative Analysis I Positive statements claims that attempt to describe the world as it is Normative statements claims that attempt to prescribe how the world should be Example of a positive statement Example of a normative statement Do economists disagree about positive issues Do economists disagree about normative issues There is a widespread belief that economists have difficulty agreeing on anyt ing 1 If all economists were laid end to end they would not reach a conclusion George Bernard Shaw In reality most economists agree on many issues Microeconomics and Macroeconomics I Definition of microeconomics the study of how households and firms make decisions and how they interact in markets I Definition of macroeconomics the study of economywide phenomena including inflation unemployment and economic growth
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'