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Introduction to Economics

by: Erna Gislason

Introduction to Economics ECON 101

Erna Gislason
GPA 3.63

Patrick Conway

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Patrick Conway
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This 3 page Class Notes was uploaded by Erna Gislason on Sunday October 25, 2015. The Class Notes belongs to ECON 101 at University of North Carolina - Chapel Hill taught by Patrick Conway in Fall. Since its upload, it has received 9 views. For similar materials see /class/228679/econ-101-university-of-north-carolina-chapel-hill in Economcs at University of North Carolina - Chapel Hill.


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Date Created: 10/25/15
Econ 101 09132011 September 26quot Review Session 7 9 PM Carroll 111 QampA Session 0 Use ConnectI 1 0 Check out Archive page for handout IV Consumer and Producer Choice Income and substitution effects Rational Spending Rule 1 Price Ceiling oor 2 Law of Demand 3 Utility 4 Marginal Utility 5 6 In Class Worksheet Class 4 3 Economic ef ciency occurs when all goods and services are produced and consumed at their socially optimal quantities Describe the socially optimal consumption of UNC basketball tickets Is this market determined The people with the lowest opportunity cost for their time are the ones who will spend their time trying to get UNC basketball tickets 4 This socially optimal quantity is the consumption of a good or service that results in the maximum possible total surplus from producing and consuming the good or service Consider the market for pork represented in the book Eating Animals In what sense is the current quantity of pork a socially optimal quantity IN what sense is it not Minimum Wage What is it No one can hire a laborer and pay him less than 725 What does it do to teenage workers Fewer teens hired because that s too much to pay for teens with no working skills According to the WSJ does it cause unemployment It leads to some but it leaves a standard for pay Price Floor aminimum allowable price speci ed by law Price Ceiling Egyptian bread example Maximum allowable price speci ed by law Markets and Market Interventions o Equilibrium an outcome with no cash on the table It is characterized by economic ef ciency 0 Equilibrium is usually socially optimal as well but not always ex Ifthere are external costs or bene ts to society 0 Society sometimes chooses to set process away from the equilibrium price This usually happens when external costs and or bene ts are identi ed 0 Setting a price requires some other government intervention to support it 7 ex buying up surplus selling stockpiles in shortage threatening legal action IV Consumer and Producer Choice A Law of Demand people do less of what they want to do as the price of doing it rises As prices rises the quantity demanded falls B How do people choose They maximize utility Utility A measure of satisfaction associated with consuming a good or service Utility aggregates includes the monetary and nonmonetary bene ts associated with consumption Consumer Choice ii Decisions are made at the margin Marginal Utility the additional utility associated with consuming an additional unit of a good or service Law of Diminishing Marginal Utility the tendency of for the additional utility gained from consuming an additional unit to diminish as consumption increases Consumer Choice iii Decisions are made subject to budget constraint some combinations of goods are affordable while others are not The consumer chooses the one combination of goods and services that gives the maximum utility from among the set of all affordable combinations Consumer Choice iv An Example George has a budget of 50 per month and he has to keep to his budget He only spends his budget on two things pizzas 5 and gourmet coffees 2 While he can afford many combinations of these goods We can assemble all ofthe possibilities into a curve This is similar to the ppc The Rational Spending Rule as long as the ratio marginal utilityprice for good A is larger than for good B you should expand consumption of good A and reduce consumption of good B Demand for Cigarettes


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