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Department
Economics
Course
ECON 201
Professor
All Professors
Semester
Fall

Description
Chapter 1Macroeconomics studies the economy as system in which feedbacks among sectors determine national output employment and prices On the other hand Microeconomics is the study of individual behavior in the context of scarcityA critical element in making choices is that there exists a Scarcity of time or income or productive resources Value exists because of scarcity In these microlevel behaviors the decision makers have a common goal to do as well as he or she can given the constraints imposed by the operating environmentThe key role of MarketsMarkets play a role in coordinating the choices of individuals with the decisions of business In modern markets mixed economies exist when goods and services are supplied both by private suppliers and government All disciplines progress and develop and explain themselves using models of reality A model is a formalization of theory that facilitates scientific enquiry In short models are frameworks we use to organize how we think about a problem Economists use models like a map and weEconomists sometimes interchange the terms theories and models though they are conceptually distinct A model is a formalization of the essential elements of a theory and has the characteristics we described above A theory is a logical view of how things work and is frequently formulated on the basis of observation The Opportunity cost of a choice is what must be sacrificed when a choice is made Ex You can buy three trees but no apples or 10 apples but no treesOpportunity cost 10 applesOpportunity cost 3 treesExUse of the PPF in a graph Chapter 1 page 8HoursfishHoursvegetableFish productionVegetable ProductionAmanda321218Zoe24189Each producer has a time allocation of 36 hours By allocating total time to one activity Amanda can produce 12F or 18V Zoe can produce 18F or 9V By splitting their time each person can also produce a combination of the two If Amanda spends all her time fishing she can catch 12 fish but if she spends all her time growing Vegetables she can get 18 vegetables For zoe 36 hours of fishing at 2 fish per hour18 fish and 36 hours of vegetables at 4 fish per hour9 vegetablesIf Amanda from a starting point of 18 V and zero F wishes to produce some F and less V she must sacrifice 15 units of V for each unit of F she decides to produce This is because F requires 50 more hours than V Heris 1510 or equivalently 32 In the graphic for every 3 tradeoffunits of V she does not produce she can produce 2 units of F reflecting the hours she must devote to each Yet another way to see this is to recognize that if she stopped producing the 18 units of V entirely she could produce 12 units of F and the ratio 1812 is again 32Yet another way to see this is to recognize that if she stopped producing the 18 units of V entirely she could produce 12 units of F and the ratio 1812 is again 32 This then is her opportunity cost the cost of an additional two units of F is that 3 units of V must be sacrificed Zoes opportunity cost by the same reasoning is 121 unit of V for 2 units of FIf Amanda and Zoe specialize and split up their resources time properly they can get more from their time then if they work separately This means that Zoe produces more fish than Amanda in a specific time and Amanda produces more Vegetables than Zoe so Zoe will spend all her time producing fish and Amanda Vs They will then decide on a trade rate ex 11 and will tradeThe Production Possibility Frontier PPF defines the combination of goods that can be produced using all resources available taking the example above Amanda or Zoe cannot produce combinations of goods beyond this line If they do not produce on the PPF line the economy is not producing to its full potential and may be in recession Recession is accompanied by high unemployment
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