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ECON 104 UNIT 1 Complete

10 Pages

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ECON 104

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Econ 104 Lecture 3 January 17, 2014 Chapter 1: Cont. • 3 key economic ideas cont. (describes how people interact in the market) o PeopleAre rational o People respond to economic incentives o Optimal decisions are made at the margin • The problem every society must solve o The index of economic freedom • Positive versus normative economics Arguments for moving minimum wage • Move poor Americans above poverty line • Reduce turn over costs and raise productivity • Increased wage would keep min. wage salary up with inflation Arguments against raising the minimum wage • Firms would raise prices • Unemployment would rise • Workers would be replaced by machines People respond to economic incentives • Grant park bus driver o Paid by the hour would make him take longer routs (less passengers) o Paid by the passenger he will take shortcuts and attract more passengers Optimal Decisions are made at the margin (additional) • Airline (200 seats) cost $100,000 to fly across country = 500$ per seat • 10 seats are empty and to fly standby is $300. Should the airline allow this? • MC = $1.25 (food/drink) • MB = $300 (standby seat) • MB>MC means airline should allow this problem Unlimited Wants – has to do with improving our standard of living • Standard of living is the amount of goods/services we can buy • To produce more goods/services, society needs recourses which are scarce Scarce Resources: • Land • Labor Make the Factors of Production • Capital SupposeApple Computer, increases production of Ipads Econ 104 • Less iPhones will be produced (ceteris paribus) Opportunity Cost of more ipad = iPhones (what will be given up) Society has to choose: • What goods and services to produce • How will they be produced • Who will consume the goods/services Who decides? Centrally Planned Economy (government) or Market Economy (market) or Mixed Economy (bit of both) The Index of Economic Freedom – based upon: • Size of government • Legal system and property rights • Sound money/monetary freedom • Freedom to trade internationally • Regulation Lecture 4 January 22, 2014 Chapter 1: Cont. • The economic problem that every society must solve, cont. o Index of economic freedom (based on)  Size of government  Legal systems and property rights • Positive versus normative economics o Positive: if we raise the minimum wage, unemployment will increase  Statement that can be verified and testing scientifically o Normative: economic analysis has shown that minimum wage is a bad idea  Statements are opinions and are untestable Chapter 2: (skip market systems and circular flow) • The Production Possibility Frontier o Shows the maximum attainable combinations of two products that may be produced, ceteris paribus (holding every constant/unchanged) o IPhones (VerticalAxis) IPads (HorizontalAxis) Opp. Cost is 200 between all points on the line because it is linear. All points on the line are efficient All points before the line are inefficient All points after the line are unattainable at current resources Econ 104 200 200 200 MILITARY Opp. Cost increases along the curve 10 30 40 80 CONSUMER Lecture 5 January 24, 2014 • Assumptions of PPF o Resources are fixed o Full employment of resources o Technology unchanged • Economic Growth: PPF shifts outward (increase in standard of living) o Occurs when there is an increase in the:  Resource base  Technological innovation o Results: a Country’s standard of living increases in terms of the number of goods and services available. o 2 most important sources of Economic Growth:  Increase in capital stock  Technological advancement • Increases worker productivity (output/hour) Econ 104 • Graph 1 Lecture 5 Technological Advancements that January 27, benefit both the production of 2014 Military consumer and military goods Military Graph 2 • Investment: the use of resources Technological Advances that to create or buy benefit production of ONLY new capital consumer goods equipment o I = Consumer Change in Consumer capital stock • PPF illustrates trade off and opportunity cost • Increasing opportunity costs o Shape of PPF is bowed out from the origin • Economic Growth o PPF shifts outward o Increases the standard of living • The law of demand o Inverse relationship between the price of a good and quantity demanded, ceteris paribus o As price increases, QD will decrease o As price decreases, QD will increase o Demand curve shifts when there are changes in:  Income  Number of buyers  Consumer taste/preferences  Future price expectation o Change in demand: shift of the actual demand curve on PPF o Change in quantity demanded: movement along the same demand curve • The law of supply o Direct relationship between price of a good and quantity supplied, ceteris paribus o As price increases, QS will increase o As Price decreases, QS will decrease o Supply curve shifts when there are changes in:  Technology  Capital goods Lecture 6 January 29, 2014 • Market equilibrium o Where supply curve intersects demand curve Econ 104 o Surplus  Supply is greater than demand (results in price to drop) o Shortage  Demand is greater than supply (results in price to increase) o If price is not equilibrium, it will move back to equilibrium over time • Both equilibrium price and quantity increase because at any given price, people are demanding more of the $600 good/service $400 D2 12 95 • Supply and quant
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