Class Notes (836,128)
United States (324,350)
Economics (261)
ECON 104 (63)
Kearny (1)
Lecture

Notes.docx

9 Pages
188 Views
Unlock Document

Department
Economics
Course
ECON 104
Professor
Kearny
Semester
Winter

Description
Chapter 1- Economics: Foundations & Models (No such thing as a free lunch) • The economy is doing ok. We need to close the output gap and create jobs for workers • The debt is huge. We need to increase taxes and cut spending. When and how fast should cut the debt • Fiscal Drag- • Two examples of relevance o Subsidize student loans  Raise taxes  Borrow more  Cut spending o Raise minimum wage (compare costs and benefits)  Positives- Move poorAmericans above poverty line, reduce turnover costs and increase productivity, increasing wage would keep minimum wage salary up with inflation  Negatives- Firms would increase prices, unemployment would increase, and workers would be replaced by machines • Economics- The study of the choices people make to attain their goals, given their scarce resources o We make choices because we live in a world of scarcity (unlimited wants exceed limited resources to fulfill wants) o Market- a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade • Three Key Economic Ideas o People are rational  Consumers and firms use all available information as they act to achieve their goals  Weigh benefits and costs of actions  You go see a movie for $7 and it was awful. The decision was not irrational. Exante (before)= >7 and Expost (after)= <7 o People respond to economic incentives  Pay by the hour and not by something else o Optimal decisions are made at the margin  Marginal= extra/additional  MarginalAnalysis- rational people compare MC and MB  How much should airline charge passengers who fly standby? • Plane= 200 seats & Cost to fly= $100,000 • Average cost= 100,000/200 = $500 • Someone comes and says they’ll fly for $300 • MC= 1.25 (peanuts and soda) MB= 300 • MB>MC • Scarcity & Opportunity Cost o Unlimited wants has to do with improving our standard of living o Standard of living is the amount of goods and services we can buy o Factors of Production (scarce)- Land, Labor, and Capital. o Trade-offs- producing more of one good or service means producing less of another o Opportunity Cost- The highest-valued alternative that must be given up to engage in an activity  SupposeApple increases production of ipads.  Ceteris Paribus- Holding everything else constant. Less iphones produced  OC of ipads is iphones o Society has to choose what, how, and who will goods and services be produced o Centrally Planned Economies-An economy where the gov decides how economic resources will be assigned o Market Economy- The decisions of households and firms interacting in markets decide on economic resources  Rely primarily on privately owned firms to produce goods and services and to decide how (markets)  High-income democracies tend to have market economies o Mixed Economy- Amarket economy with more government control o Productive Efficiency- Good or service is produced at the lowest cost o Allocative Efficiency- Where production is in accordance with customer preferences (MC=MB) o Voluntary Exchange- In markets when buyer and seller are made better off by the transaction o Equity- Fair distribution of economic benefits o Economic Variable- Something measurable that can have different values, such as the incomes of doctors • Positive Versus Normative Economics o PositiveAnalysis- Concerned with “what is” o NormativeAnalysis- Concerned with “what ought to be” o Positive Economics- Based on facts that can be tested o Normative Economics- Statements are based on an opinion and are untestable • Macro vs. Micro o Microeconomics- Study of how households and firms make choices, how they interact in markets, and how the gov attempts to influence their choices o Macroeconomics- Study of the economy as a whole, including topics like inflation, unemployment, and economic growth • Appendix o Graphs are used to simplify economic ideas and to make ideas more real so that they can be used for real-world problems o Agraph showing the relationship between price and quantity of a good is a demand curve o Slope of Lines- Change in y/Change in x o Percentage Change- GDP2010 – GDP2009/GDP2009 X 100 Chapter 2 INTRODUCTORY MACROECONOMICANALYSIS & POLICY • Production Possibility Frontier (PPF): o Shows the maximum attainable combinations of two products that may be produces, ceteris paribus o Ceteris Paribus- ALatin phrase that means while certain variables change, “all other things remain unchanged.” o Curve is a straight line. The OC is constant o If you’re inside the curve, you’re in recession because demand is low (attainable but inefficient) o Points on the line are attainable and efficient (using all available resources to maximize output) o Outside the curve is unattainable (we would need more resources) • Opportunity Cost: o The highest valued alternative that must be given up to engage in an activity. (number of iPhones not produced) o Curve is not straight • Increasing Opportunity Cost: o As an economy moves down along PPF, it can experience increasing marginal opportunity costs (because we are taking more resources away) • Assumptions of PPF: o Resources are fixed o Full employment of resources o Technology unchanged • Economic Growth: PPF shifts outward o Economic growth occurs when there is an increase in the  Resource base  And/or technological advance o Result:Acountry’s Standard of Living increases in terms of the number of goods and services available. o Economic growth- Increase in capital and a Technological advance (both increase worker productivity) o Worker productivity= output/hour o Economic growth increases the standard of living o Increase In Resources: Oil, baby boom, increase in capital goods (investment) o TechnologicalAdvance: Converting shale into oil, the internet, computers, innovations of entrepreneurship o Economic Growth- Technological advance that benefits both of the products (outward shift) • SUMMARY o PPF illustrates tradeoffs and opportunity cost o Increasing opportunity costs:  Shape of PPF is bowed or concave to the origin o Economic Growth:  PPF shifts outward  Increases the standard of living o Investment- The use of resources to create or buy new capital/change in capital stock. CHAPTER 3: WHERE PRICES COME FROM • The Product Market o Demand Curve: Households purchase goods and services o Supply Curve: Firms supply goods and services o Market Equilibrium: Quantity demanded equals quantity supplied • The Law of Demand o There is an inverse relation between the price of a good and quantity demanded, ceteris paribus o Shifts in Demand occurs when there is a change in  The number of buyers  Income  Expectations of future prices  Tastes and preferences  Interest rates- When they’re low, demand shifts right o Achange in demand versus a change in quantity demanded  As price falls- a change in quantity demanded  As income increases- point off the curve; at every price, quantity demanded is higher; change/increase in demand • The Law of Supply o Positive Slope o There is a direct relation between the price of a good and the quantity sellers are willing to offer for sale, ceteris paribus o Shifts in Supply  The Law of Supply: There is a direct relation between the price of a good and the quantity sellers are willing to offer for sale, ceteris paribus.  AShift in Supply occurs when there is a change in: • The number of firms in the market • Prices of inputs • Technological change • Expected future prices • Market Equilibrium o Where supply and demand intersect- Where buyers and sellers agree on P&Q o If not ME, it’s a Shortage or Surplus (determines which way prices go) o Shortage:As Price Increases, Demand Decreases o Surplus:As Price Increases, Demand Increases o Increase in demand  Increase in *P and *Q • Appendix: The Minimum Wage Chapter 8-
More Less

Related notes for ECON 104

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit