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ECN104 - Ch 1 Notes.docx

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ECN 104
Thomas Barbiero

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ECN 104 – Chapter 1 Notes 1.2 The Economic Way of Thinking: Scarcity & Choice Unlimited wants & resources The need to make choices Opportunity Costs: can’t have it all Purposeful Behavior Individual maximizes utility (pleasure) Marginal Analysis Choice made by weighting the marginal (extra) costs & marginal benefits 1.3 Theories, Principles, & Models Scientific Method Observe, formulate a hypothesis, test by comparing hypothesis to results, accept/reject/modify hypothesis, continue testing As favorable accumulate, the hypothesis evolves into theory/model Widely accepted theory = law/economic principle Deriving Theories Terminology Economic Problem: statement about economic behavior Generalizations: economic principles (ie: price decreases =consumption increases) Other things – Equal Assumption ie: sale of coke 1) price increase = quantity demand decreases 2) temperature increases = sales does not decrease/increases 1.4 Microeconomics vs Macroeconomics Microeconomics examines individual units (household, firm or industry) Decision making process Macroeconomics examines The whole economy (can be tested) Subdivision/aggregates – inflation, employment rate Positive & Normative Economy Positive Economy “what is” Analysis of facts to establish cause-and-effect relationship Without value judgments, it can be tested Normative Economy “what it ought to be” Involving value judgment about what the economy should be like “There should not be any poor people in Canada” (cannot be tested) 1.5 Economic Problem Limited (finite) income Unlimited wants The Budget Line Attainable & unattainable options Tradeoffs & opportunity cost Make the best choice possible, given your preference & income Change in income Society’s Economic Problem scarce resources land/natural resources capital: capital gross (manufacturing aids, factories, storage, machinery, etc) Human Resources Labor (physical/mental talent) Entrepreneurial Ability, takes initiative, makes policy decisions, innovative, bears risks 1.6 Production Possibilities Model & Increasing Opportunity Costs Illustrates production choices Assumptions Full employment & productive efficiency (lowest cost of production) fixed resources, fixed technology, two goods (ie: pizza = consumer goods, industrial robots = capital goods Law of Increase Opportunity Costs Opportunity Costs increase with amount produced Increase of pizza = # of robots increase b/c economic resources are not complete
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