ECON 208 Study Guide - Final Guide: Takers, Shortage, Mixed Economy
30 May 2018
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ECON208
#2
(first two ques are micro, the second two are macro)
Economics — science — assumptions and the testing. Modelling the world. Economic
models are not always an exact picture of reality. Assumptions may not be realistic, yet that
doesn't mean that the models are wrong. Hard to conduct controlled experiments on. Case
studies though are used (e.g. black death), even though there are many random variables,
which will be overlooked when analysing statistically. Use history to reach a causal
relationship, similar to astronomy.
● Growth in productive capacity is shown by an outward shift of the ppb
● Slope of this graph shows the opportunity cost. Rate of change/ how much you would
have to give up of one to get to the other. Ratio of sacrifice.
● With more resources, the line could move left or right.
● Ability to produce goods would indicate via the graph how fast the economy would
grow.
● Que : Can an economy continue to grow, if it becomes more efficient?
● Que : Do we really need to grow?
Economics and government policy
The design and effectiveness of government policies relevant to discussing all four
problems.
● It can alter the allocation of economy’s resources to make a society as a whole better
off.
● It can be used to improve the distribution of consumption across individuals.
The government is there to prevent anarchy, allocate goods, take over when markets fail.
Market failure
Externalities
Corruption
Monopoly Power — efficiency, can lead to the abuse of the market, corruption, and because
this happens by the way the market would work, then this is a market failure. Exploitation of
labour, wages, supply.
— When a company becomes too big, or big firms want to join, the government will try to
stop the formation of a monopoly to prevent market failure in such as way
Self organization of market
Production and Trade — Production usually displays two characteristics noted long ago by
Adam Smith : Specializations and division of labour. Specialization is the allocation of
different jobs to different people. It is more efficient that self-sufficiency because :
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1. Individual abilities differ — comparative advantage
2. Focusing on one activity leads to improvements — learning by doing
Traditional command and free market are the three pure types of economic systems.
Trade — equal amounts given and taken.
Command — one central planner
Free Market
In practice every economy is a mixed economy, in the sense that it combines significant
elements of all three system.
Chapter 2
Rejection vs. Confirmation
The hypothesis can be tested and may be rejected by the data. This rejection brings the
value of the theory into question. An alteration is to search for confirming evidence.
Correlation does not mean causation.
Chapter 3
Where there is trade, there is a market, constituting of buyers and sellers. Everyone is a
factor of production — supplier — , consumers, demands.
Demand, Supply, and Price — describes the ideal world, and the ideal market, even
though it is not applied to all markets, such as in a monopoly. It is the ideal situation, even
mathematically.
3.1 Demand
A. Quantity Demanded — The total amount that consumers desire to purchase, in some
time period, is called the quantity demanded of products, the current price.
B. Quantity bought (or exchanged) refers to the actual purchases.
C. True wealth — purchasing power.
D. Demand is a flow, not a stock.
a. E.g. — wealth is a stock. It is stable. Flow is more like an income, which is
tied with time. Quantity demanded is affected by time.
E. Demand Curve
a. A basic hypothesis is that — ceteris paribus — the price of a product and the
quantity demanded are negatively related.
b. Why? There are usually several products that can satisfy any given want or
desire.
F. Demand Curve
a. When creating the demand curve in graphs, the independent variable is on
the Y-axis.
b. Only thing we want from the curve, is for it to have a negative correlation/
downward sloping
find more resources at oneclass.com
find more resources at oneclass.com
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ECON 208 Full Course Notes
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Document Summary
#2 (first two ques are micro, the second two are macro) Economics science assumptions and the testing. Economic models are not always an exact picture of reality. Assumptions may not be realistic, yet that doesn"t mean that the models are wrong. Case studies though are used (e. g. black death), even though there are many random variables, which will be overlooked when analysing statistically. Use history to reach a causal relationship, similar to astronomy. Growth in productive capacity is shown by an outward shift of the ppb. Slope of this graph shows the opportunity cost. Rate of change/ how much you would have to give up of one to get to the other. With more resources, the line could move left or right. Ability to produce goods would indicate via the graph how fast the economy would grow. The design and effectiveness of government policies relevant to discussing all four problems.
