Intro Economics Survey Course
Intro Economics Survey Course ECON 201
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This 8 page Class Notes was uploaded by Kelsi Adams I on Monday October 26, 2015. The Class Notes belongs to ECON 201 at University of Tennessee - Knoxville taught by Kenneth Baker in Fall. Since its upload, it has received 18 views. For similar materials see /class/229886/econ-201-university-of-tennessee-knoxville in Economcs at University of Tennessee - Knoxville.
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Date Created: 10/26/15
THE ECONOMIC FRAMEWORK The Econ m Way ofT n ng The Bottom Line El Economics then is about decisionmaking El What does mean El Everyone you households firms the government should weigh the costs and benefits properly when making w decision El Example should you go to college or get a fulltime iob out of high school Weighing Costs and Benefits El THE BENEFITS El When making a decision what do you gain by saying yes i This is fairly straightforward I Should the government build a new road Benefilis obviously a new ma 1 Should you buy lhol house Benefil is the enioymenl you gel out of lhe house i Should you go to college oher high school Benefit is u Weighing the Costs and Benefits El THE COSTS El Economists like to think this is our big contribution to the wor 1 Perhaps a slightly differenlwoy lo frame a problem but we lhe feel very slrongly that ll is lhe correct way lo View problem loelore making the correct decision El How much does a movie cost El How much does it cost to go to college for a year Economic cost example College o How much does college cost UT instate FallO9springl 0 Costs Total Economic Cost BIG IDEA IN ECONOMIC El When calculating the cost of a decision you must always include the opportunity cost DQEEQRIJLNHLQQET Question Should I go to college for 1 year Yes No m Bene ts 1 year college educatron Costs Costs wear college educatron 1 Weighing your decision Correct Framework I Bene ts costs Bene ts Costs Decisions at the Margin El Margin means El Most decisions you make everyday are small incremental decisions I How do you spend the next free hour I Do I wont to buy 1 more pair of shoes o Do I wont to take 12 or 15 hours this semester El We normally don t measure the total benefits or costs but instead marginal benefits and marginal costs of a decision El If le People Respond to Incen ves El Since a People behave rationallyand u People make small everyday decisions based on comparing small benefits against small costs El Then i Practice J L in repairs du ring the last year Justbefoie you can sell it the d39 air tnnsin on ieswiiieliwi11eost975o to rep Foreach scenario should you fix the transmission ornot The blue ook foryourcaras is without aworking transmission is 45oo ssmoo witha working one 1 Theblue bookforyour earas is without a working t innsniission is 45oo 54a o wit h a working one r39i 439 PRODUCTION POSSIBILITIES FRONTIER PPF I a PPF u an economic El Useful to show u the effects of scarcity and its consequences u the marginal costs and benefits of making decisions PPF Example I D Suppose that we have a lens of 0 u lors of Bloody Mary mix u I D What can we do with these resources When are our possibiliries 2 PPF example 1 cont What are the possi es PPF example 1 cont Bloody W Marys 6 p 44444 44 6 Screwdrivers PPF important points El All points on the PPF are said to be u we are using all of our available resources ro rheir besr use is El All points inside the PPF are said to be a we ore nor using all or our available resources resources ore lefr idle El All points outside the PPF are said to be u iris currenrly impossiblero produce more rlran poinrs given by r e PPF PPF example 1 cont 7 Bloody How much does a Bloody Mary cost Maws Suppose We are at 3 Bloody Marys and 3 screwdrlvers 6 Slnce We already have me vodka and m x does one more Bloody Mary cost anythmg l r 4 6 Screwdrivers 11 PPF Example 2 El More realistic example El Country can produce two types of goods in Public Goods goodsro prorecr country Sinus a Consumer Goods goods consurners need l PPF Example 2 Cost of moving from A to B D What are the benefits and costs What do we gain and what must we give up D What did we gain D What did we lose D What is the opportunity cost of each Gun How much does each Gun cost Cost of moving from B to C D What are the benefits and costs What do we gain and what do we ose D What did we gain D What did we lose D What is the opportunity cost How much does each Gun cost now D We gained B Each Gun Cost of moving from C to D D What are the benefits and costs What do we gain and what do we ose D What did we gain D What did we lose D What is the opportunity cost How much does each Gun cost now D We gained B Each Gun u The more guns we have the more expensive they become a we muxl xaaifke more and more Roxex for eah gun a Unlike the 5rewdriverBloody Mary example where D LAW OF INCREASING OPPORTUNITY COST As we u Emh gun gained bemmex progrexxively more expenxive u The same happens for Roses as we move from D to A try it Technological Advance Suppose there 5 a technotogtcat 15 A advance m Gun pro ucuon e how does that affect our PPF7 Roses 10 77777777 5 I D 10 Guns
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