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ECN 204
Leo Michelis

Marcoeconomics Reading Chapter 1: 10 key Concepts The individual Concept 1: facing tradeoffs Concept 2: Opportunity Costs Concept 3: choose a littile more or less Concept 4: The influence of incentive Interaction among individuals Concept 5: Specializations and trade Concept 6: The effectiveness of Markets Concept 7: The role of the governments The economy as a Whole and the Standard of living Concept 8: Production and the standard of living Concept 9: Money and inflation Concept 10 : inflation J unemployement trade off 1.2 The economics Way of thinking Our wants greatly outstrips our ability to satisfy them An economic problem is when a situation where are wants are greater than the resources to meet our desires is this problem . Economic Perspective : A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their action Scarcity and Choice Since resources are scarces ( limited) , it follows that the goods and services we products must also be limited. Scarcity limits our options and necessitates that we make choices. Opportunity Costs: The amount of other product that must be forgone or sacrificed to product a unit of a product To get more of one thing you must forgo the opprtunity of getting the next best thing Nothing is free because there is always a cost to someone Purposeful Behaviour ,KLZ]}o Z^]}Lo Zo]LZ_Z]ZoZ}]L]]o}}o}}l}LZ opportunities to increases their utility Utility : the pleasure, happiness, or satisfactions obtained from consuming a good or service Allocate their time , energy, and money to maximize their satisfaction ; they weight costs and benefits, their decisions are purposeful or rational never random or chaotic. PB simply means that people make decisions with some desired outcome in mind Self-interested behavior is simply behaviours designed to increases personal satisfaction ; however it may be derived Marginal Analysis : Benefits and Costs Marginal Analysis J is the comparison of marginal benefits and marginal costs ; this done for decision making. If the MB of the larger diamond exceed its MC ; you buy the larger stone MC is more then the MB ; you buy the smaller diamond instead SCARCITY = the MB associated with some specific option always includes the MC of forgoing something else. 1.3 Theories, Principles and Models Economics reilies on the scientific method Scientific method : the systematic pursuit of knowledge through formulating a problem, collecting data, and formulating and testing hypotheses to obtain theories principles and laws 1) observing real-world behavior and outcomes 2) based on those observation forumating a possible explanation of cause and effect 3) testing this explanation by comparing the outcomes of specific events to the outcome predicted by the hypothesis 4) Accepting , rejecting or modifying the hypothesis based on these comparison 5) using the hypthoesis make a theory ; this theory is called the economic law or economic principle A statement about economic behavior or the economy that enables e prediction of the probable effects of certain action. in economics theory are developed through the behavior of individual and institutions engaged in the production, exchange and consumption of goods and services theories , principles and models are :purposeful simplifications. Models and principle are useful in eanalyzing the econ behavior ad understanding how the economy operates Ascertaining cause and effect within the economics system, Others things about economics principles is they : generalizations, other thing equal assumption and graphical expression 1.4 Mircoeconomics and Marcoeconomics Mircoeconomics Is the part of economics concerned with indivudal units such as a household, a firm or an industry Decision making by individual customers, workers, houses and business firms We measure the price of a specifics product; number of workers employed by a single firm ; the revenue or income of a particular fir or household or the expenditures of a specific term , government entity o family Marcoeconmoics Examines either the economy as a whole or its basic subdividions or aggregates such as : government , household and business sectors. Aggreates : is a collection of specific economic units treated as if they were one unit Might lump together the millions of consumers in the Canadian economy and treat them as were one Z2L] oo^ }LZKZ_ Overview; gernal outline of the structure of the economy We look at total output; employement , income and AE; general level of prices in analyzing various economics problems Positive and Normative Economics Positive economics focuses on facts and casuse and effect relationship. Includes description theory development, theory testestiong It avoids value judgement Deals with what the economy is actually like through establisinh scientific statement about economics behavior. Normative economics which incorporates value judgement about what the econmy should be like or what particular policy actions should recommended to achieve a desirable goal Underlies expression of support for particular economic policies PE concerns with whats is and NE concerns what its ought to be 1.5 The economic problem which is the need to make choices because economic wants are u limited but the means ( income time and resuources) virtually for stasifying those wants are limited. Limited income our income come in the form of wages, interest, rent and profit ; government programs and from our on family members Unlimted wants Desire various goods and services hat provide utility economics wants tend to change and mutiply due to new products that are improved and introduce into the market The satisfaction of certain wants may trigger others Services , as well as goods can satisfy our wants. Due to only limited income ; it is in our self interst to pick and choose goods and services that WILL maximize our satisfaction. The Budget Line Is a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income Attainable and unattainable combinations All the combination of dvds and books in figure 1.1 on or inside the budget line are ATTIANABLE from the 120 of money income ( the thing you can afford to buy ) To achieve max utility you will want to spend the full 120 In figure 1-1 , the unattainable is beyond the budget line Tradeoff off and opportunity cost Tradeoff is basically give up something to get something else Eg. To obtain off 2 books; the dvd vd Is 2 books you trade first off 2 books ; the opp cost of the first The straight line constraint, constant slope, indicates constant opp cost. Choice ZZ]Ll]Z^Z_8Z] Z]Z}]ooo},L,}Kl Z}] ZZ mazmize your satisfaction Income Changes the location of the budget line varies with money income l it can increase in money and shift the budget like ot the right or decrease in money income shifts it to the left. ^} ][Z }L}K] }oK Must also make choices under conditions of scarcity Faces the economic problem Scarce resources limited or scarce economic resources ; meaning all natural, human , and manufactured resources that go into the production of goods and services. Resource catergories Four general categories LAND Includes all natural resources used in the production process LABOUR Consists of the physical and mental talents of individuals used in producing goods and services CAPITAL Includes all manufcation aids used in producing consumer goods and services l tools and machinery as well as factory storage, transportation and distribution facilities. Investment : refers to the purchase of capital goods Spending for th production and accumulation of capital Dfferences is the capital goods is an indirectily by aiding the product of cosumer good ENTREPRENEURIAL ABILITY The human talents that combine the other resources to produce a product , make non-routine decisions innovate and bear risk 1) take the initative in combining the resource of land , labour , and capital to produce a good or a service. ( acts like a sparkplug ad catalyst) 2) the entrepreneur is an innovator; e or she commercializes , new production techquines, new product or new forms of business orization 3) makes the strategic business decision that set the course of an enterprise. ]Z]Zl8L}2L}}]:@Z}ZLL[Z]K7}ZL]o]K be profits or losses Land + labour+ capital + entreprenueuring ability = FACTORS OF PRODUCTION 1.6 Production possibilities mode and increasing opportunity cost Full employment : the economy s employ all its available resources Fixed resources: the quantity and quality of the factor of production are fixed Fixed technology: the state of technology ( the methods used to produce output is ) constant. Two goods : Consumers goods; products that satisfy our wants directly Capital goods : product that satisfy our wants indirectly by making possible more efficient production of consumer goods. Production Possibilities Table Lists the different combinations of two products that can be produced with a specific set of resources assuming full employment An economy typically produces both capital goods and consumer goods Shifts of resources to consumer g
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