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Lecture

Econ 2 and 3.docx

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Department
Economics
Course
ECON 1000
Professor
George Georgopoulos
Semester
Fall

Description
Ch. 2: The Economic Problem  Production possibilities frontier (PPF): boundary between combinations of goods and services that can and cannot be produced.  outward bowed-out shape reflects increasing opportunity cost  not all resources are equally productive in all activities o cannot attain points outside of frontier (scarcity) o points inside frontier are inefficient  resources are unused or misallocated  production efficiency: if goods and services produced at lowest possible cost  allocative efficiency: goods and services are produced at the lowest possible coast and in the quantities that provide the greatest possible benefit o intersection of marginal cost and marginal benefit  preferences: description of a person's likes and dislikes o illustrated on marginal benefit curve  Economic growth: expansion of production, PPF shifts right. Opportunity cost of economic growth is less current consumption o technological change: development of new goods and of better ways of producing o capital accumulation: growth of capital resources, including human capital  comparative advantage: a person can perform the activity at a lower opportunity cost than anyone else  Absolute advantage: a person who is more productive than others. Production per hour o gain from trade if specialization at comparative advantage  dynamic comparative advantage: gaining comparative advantage from learning-by-doing o Learning-by-doing: specialize and by repeatedly producing a particular good or service become more productive in that activity and lower the opportunity cost of producing that good over time.  Economic coordination: decentralized economic planning o Firms: economic unit that hired factors of production to produce and sell goods and services o Markets: arrangement that enables buyers and sellers to get information and to do business with each other  facilitates trade o Property rights: social arrangement that govern ownership, use, and disposal of anything people value  Real property: land, buildings, equipment, etc.  Financial property: stocks, bods, money, etc.  Intellectual property: intangible product of creative effort: books, music, etc. o Money: any commodity or token that is generally acceptable as a means of payment  Circular flow through markets Ch. 3: Demand and Supply  competitive market: a market that has many buyers and sellers, so no single buyer or seller can influence the price  money price: the amount of money needed to buy an item  relative price: opportunity cost, the ratio of price over price of the forgone alternative Demand  demand: relationship between price and quantity demanded  If demand exists then: o must want it o can afford it o plan to buy it  Wants: unlimited desired or wishes that people have for goods and services. Demand reflects which wants to satisfy  quantity demanded: amount that consumers plan to buy during a given time period at a particular price  Law of Demand o other things remain the same, the higher the price of a good, the smaller is the quantity demanded; the lower the price of a good, the greater is the quantity demanded  Substitution effect: when relative cost (opportunity cost) increases, people seek substitutes, thus quantity demand decreases  Income effect: when cost increases, and income remains the same, people cannot afford to buy all of the same things, thus quantity demanded decreases  Willingness and ability to pay: demand curve, the more quantity, the less people are willing to pay. The less the quantity, the more people are willing to pay.  Change in demand: movement of entire demand curve
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