Class Notes (839,475)
United States (325,993)
Economics (131)
ECO 2023 (60)
Mark Rush (56)

Economics Notes.docx

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ECO 2023
Mark Rush

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What is Economics? Annabelle Juin Scarcity- the inability to get everything we want.  It is universal  Limited by the resources available  Must make choices to get what you want Incentive- a reward that encourages an action or a penalty that discourages one Economics  The Social science that studies the choices that individuals, businesses, governments and entire societies make as they cope with scarcity and incentives that influence and reconcile those choices  Microeconomics- is the study of the choices that individuals and businesses make, the way these choices interact in markets and the influence of governments o Economics on an individual scale  Macroeconomics- the study of the performance of the national economy and the global economy. Goods and Services- Are the objects that people value and produce to satisfy wants  Goods are physical objects  Services are tasks performed Factors of Production- resources used to produce goods and services  Land o The “gifts of nature” that we use to produce goods and services o Aka natural resources: land, minerals, fish, oil, gas, coal, water, air, forests  Labor o The work time and work effort that people devote to producing goods and services. o Physical and mental efforts of people o Human capital- the knowledge and skill that people obtain from education, on-the-job training, and work experience o Earns the most labor  Capital o Tools, instruments, machines, buildings and other constructions that businesses use to produce goods and services o Financial capital- money, stocks, bonds  Entrepreneurship o The human resource that organizes labor, land, and capital o Drivers of economic progress Self-Interest- a decision based on the best choice for oneself Social-Interest- a decision that is best for the society as a whole Efficiency- using the most of one’s resources with no possible improvements to maximize resource use. Four Issues in Today’s World:  Globalization o The expansion of international trade, borrowing and lending, and investment  Information-age monopolies o Are prices too high based on lack of competition? o Past 40 years has been the information revolution  Climate Change o 2/3 of carbon emissions come from the US, China, the European Union, Russia, and India  Economic instability o Could the banks cause some economic instability? Economic Way of thinking  A Choice is a tradeoff o Tradeoff is an exchange- giving up something to get something else  Making a Rational Choice o A rational choice is one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice  Benefit: What you Gain o The benefit of something is the gain or pleasure that is brings and is determined by preferences  By what a person likes or dislikes and intensity of those feelings  Cost: What you must give up o The opportunity cost of something is the highest valued alternative that must be given up to get it  How much? Choosing at the margin o Marginal benefit- the benefit that arises from an increase in an activity o Marginal cost- opportunity cost of an increase in an activity  Choices Respond to Incentives Economist as Social Scientist  Economists distinguish between positive statements-what is- and normative statements-what ought to be  To explain the economic world, economists create and test economic models  Economics is a toolkit used to provide advice on government, business, and personal economic decisions Graphing Data  Scatter Diagram- a graph that plots the value of one variable against the value of another variable for a number of different values of each variable o Reveals whether a relationship exists between two variables and describes their relationship o Correlation doesn’t mean causation  Positive relationship or direct relationship- relationship between two variables that move in the same direction  Linear relationship- a relationship shown by a straight line  Negative relationship or inverse relationship- relationship between two variables that move in the opposite directions  Slope- the slope of a relationship is the change in the value of the variable measured on the y-axis divided by the change in the value of the variable measured on the x-axis  Ceteris Paribus- (cet par) means “if all other relevant things remain the same (ie. Constants) The Economic Problem 9/16/2013 4:06:00 PM Production Possibilities Frontier (PPF)  The boundary between those combinations of goods and services that can be produced and those that cannot  The points outside the frontier are unattainable indicating a scarcity  The points on the frontier line are combinations of goods and services to the maximum capacity indicating total efficiency  The points within the frontier line are attainable but inefficient o A PPF is bowed outward because resources are not all equally productive in all activities The Opportunity Cost  The opportunity cost of an action is the highest-valued alternative forgone  Opportunity cost is a ratio. It is the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the production possibilities frontier Allocative Efficiency  When goods and services are produces that the lowest possible cost and in the quantities that provide the greatest possible benefit Marginal Cost/Benefit  The Marginal Cost of a good is the opportunity cost of producing one more unit of it.  Marginal Benefit from a good or service is the benefit received from consuming one more unity of it. o Depends on people’s preferences: their likes and dislikes  Marginal Benefit Curve- curve that shows the relationship between the marginal benefit from a good and the quantity consumed of that good. o Measured by the good or service by the most that people are willing to pay for each additional unit of it o Main reason why marginal benefit decreases is that we like variety and the more we have of one thing, the more we tire of it. Economic Growth  the expansion of production possibilities  Technological change- the development of new goods and of better ways of producing goods and services  Capital accumulation- the growth of capital resources, including human capital  Producing only one good or a few goods is called specialization  Comparative advantage- when a person can perform the activity at a lower opportunity cost than anyone else  Absolute advantage- a person who is more productive than others has an absolute advantage Economic Coordination  Firms o An economic unit that hires factors of production and organized them to produce and sell goods and services  Ex: Wal-Mart buys or rents large building, directs the labor, decides what goods to sell  Markets o Any arrangement that enables buyers and sellers to get information and to do business with each other.  Ex: World oil market which is a network of producers, consumers, wholesalers, and brokers  Property Rights o The social arrangements that govern the ownership, use and disposal of anything that people value  Real property- land and buildings  Financial property- includes stocks and bonds and money in the bank  Intellectual property- intangible product of creative effort  Books, music, computer programs, inventions  Money o Any commodity or token that is generally acceptable as a means of payment. Demand and Supply P S P’ ____________________________ Q Factors that Shift the Supply Curve  Cost o cost increase, supply decreases (L) o Cost decreases, supply increases (R)  Technology o Technology increases, supply increases (R)  State of Nature o Good, supply increases (R) o Bad, supply decreases (L)  Number of Suppliers o Number increases, supply increases (R) o Number decreases, supply decreases (L)  Prices of related goods o Substitute in production “or”  Price of substitute increases, supply decreases (L)  Price of substitute decreases, supply increases (R) o Complements in production “and”  Price of complements increases, supply increases (R)  Price of complements decreases, supply decreases (L)  Expected Future Price o Expected future price increases, supply decreases (L) o Expected future price decreases, supply increases (R) Equilibrium Price  Situation in which opposing forces balance  Situation in which there is no automatic tendency for change  Market- any arrangement that enables buyers and sellers to get information and to do business with each other  two sides, buyers and sellers Competitive Market- a market that has many buyers and many sellers, so no single buyer or seller can influence the price Money Price- the price of dollars that must be given up in exchange for an object Relative Price- the relative price is an opportunity cost: the ratio of one price to another price Demand  Price of the good and the quantity demanded of that good 1. Want it 2. Can Afford it 3. Plan to buy it Quantity Demanded- amount that consumers plan to buy during a given time period at a particular price.  Not necessarily the same as the quantity actually bought Law of Demand- higher the price, less de
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