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[ECN 104] - Final Exam Guide - Comprehensive Notes for the exam (160 pages long!)


Department
Economics
Course Code
ECN 104
Professor
Xingfei Liu
Study Guide
Final

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Ryerson
ECN 104
FINAL EXAM
STUDY GUIDE

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Isaiah Ferris Winter 2016
ECN104 Class 1 Notes
Definition of Economics
o Economic studies
The social science that studies how individuals, institutions, and society make optimal
choices under conditions of scarcity
Human wants are unlimited, but the means to satisfy the wants are limited
Constraints include income, finite resources, people, etc. Can't occupy the ever-
increasing demand of wants
10 Key Concepts
o The Individual
Facing trade-offs
Choose between alternatives
Ex. Choosing what to eat for breakfast
Opportunity costs
Many alternatives, choose one, give up the other alternative
Ex. I have to choose between subway or McDonalds for lunch. I choose
subway, the opportunity cost is McDonalds
Choosing a little more or less
Marginal analysis
Ex. Choosing a uni degree or working. What matters, is the difference
between the two alternatives. One alternative has $1 more to affect your
decision
The influence of incentives
Preferences, economists rely on making decisions that will give them the highest
level of satisfaction
o Interaction among individuals
Specialization and trade
Costraied to aiize ats, a’t ake eerthig  ourseles. We use our
resources in the most effective way that we have. We make trade for resources
that we are not good at producing (market)
The effectiveness of markets
How effective the market is to?
The role of governments
Consumers
Maximize happiness (utility)
Firm (Producers)
Maximize profits
Government
Try to maintain equality (distribution of income, wealth, etc.)
Boost economic growth
o The economy as a whole and the standard of living
Production and the standard of living
As economists, the way we capture production is GDP (Gross Domestic
Product). We capture sol as per capita GDP (For each individual, how much
wealth?)
Money and inflation
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Isaiah Ferris Winter 2016
Bare value of the consumption of goods over time. Uniform metric for that =
money. Helps us make trade
Inflation - unemployment
Distortion of the market - gives you confusion
The economic way of thinking
o Scarcity and choice
Resources can only be used for one purpose at a time
Land, labour, time, etc.
Scarcity requires that choices be made
The cost of any good, service, or activity is the value of what must be given up to
obtain it (opportunity cost)
Are there really "free goods"? NO
Labour, time, energy must be used to produce the good that is free to you
o Rational behaviour (purposeful)
Rational self-interest entails making decisions to achieve maximum utility
Utility is the pleasure or satisfaction obtained from consuming a good or service
Different preferences and circumstances (including errors) lead to different choices
Rational self-interest is not the same as selfishness
o Marginal analysis: benefits and costs
Most decisions concern a change in current conditions; therefore, the economic
perspective is largely focused on marginal analysis
Each option considered weighs the marginal benefit against the marginal cost
Whether the decision is personal or one made by business or government, the
principle is the same
The marginal cost of an action should not exceed its marginal benefits
There is no "free lunch"
Conflicts between long and short-run objectives may result in decisions that appear to
be irrational, when in fact they're not
Ex. Fast food line ups
Theories, principles, and models
o The scientific method
Observe the world (real data, prices, quantities, GDP)
Formulate hypotheses
The formulations of explanations of cause and effect relationships (hypotheses)
based upon the facts
Test by comparing actual outcomes to the hypothesized predictions
Accept, reject, modify hypotheses as indicated
Continue testing against the facts
o Deriving theories
Theories, principles, and models are "purposeful simplifications"
Principles are used to explain and/or predict the behaviour of individuals and
institutions
Terminology optiizatio; elastiit…
Geeralizatios aerage osuer, represetatie fir/aget, et.…
o Other-things equal assumption
Ceteris paribus assumption
Graphical expression
Microeconomics versus macroeconomics
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