[ECON 203] - Final Exam Guide - Comprehensive Notes for the exam (36 pages long!)

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Published on 29 Nov 2016
School
University of Calgary
Department
Economics
Course
ECON 203
Professor
UofC
ECON 203
FINAL EXAM
STUDY GUIDE
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Sept 14 2016
Wednesday, September 14, 2016
1:52 PM
1. Be Proactive
2. Begin with the end goal in mind
3. Put first things first
4. Think positively
5. Seek first to understand, then to be understood
6. Synergize: learn to work with others to benefit all parties
7. Sharpen the saw: Keep yourself physically, mentally and spiritually refreshed through
things like exercise, reading, praying, and good work
Scarcity: The limited nature of society's resources.
Economy: The study of how society manages its scarce resources, eg. How people decide what to buy,
how much to work, save, and spend. How firms decide how much to produce, how many workers to
fire. How society decides how to divide its resources between national defense, consumer goods,
protecting the environment, and other needs.
The 10 principles of Economics
Individual Decision Making
1. People face tradeoffs
Going to a party the night before your midterm leaves less time for studying. Having more money
to buy stuff requires longer working hours which leaves less time for leisure. Protecting the
environment requires resources that could otherwise be used to produce consumer goods.
Society faces an important tradeoff between efficiency and equality: To achieve greater equality,
could redistribute income from wealthy to poor. But this reduces incentive to work and produce,
shrinks the size of the economic pie.
1. The cost of something is what you give up to get it
Making decisions requires comparing the costs and benefits of alternative choices. Eg. What is the
cost of attending school? Well you could be working and earning money in the time spent at
school. It is the relevant cost for decision making. Or seeing a movie Is not just the price of the
ticket, but the value of the time you spend in the theatre.
1. Rational people think at the margin
Rational people systematically and purposefully do the best they can to achieve their objectives.
They make decisions by evaluating costs and benefits of marginal changes, incremental
adjustments to an existing plan. Eg. When a manager considers whether to increase output, she
compares the cost of the needed labor and materials to the extra revenue.
1. People respond to incentives
Something that induces a person to act, ie. The prospect of a reward or punishment. Rational
people respond to incentives. Eg. When gas prices rise, consumers buy more hybrid cars and
fewer gas guzzling SUVs. When cigarette taxes increase, teen smoking falls.
1. Trade can make everyone better off
Rather than being self-sufficient, people can specialize in producing one good or service and
exchange it for other goods. Countries also benefit from trade and specialization: Get a better
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price abroad for goods they produce, buy other goods more cheaply from abroad than could be
produced at home
1. Markets are usually a good way to organize economic activity
Market: a group of buyers and sellers (need not be in a single location)
"organize economic activity" means determining what goods to produce, how to produce them,
how much f each to produce, and who gets them. A market economy allocates resources through
the decentralized decisions of many households and firms as they interact in markets. Famous
insight by Adam Smith in The Wealth of Nations (1776): Each of these households and firms acts
as if "led by an invisible hand" to promote general economic well-being.
The invisible hand works through the price system: The interaction of buyers and sellers
determines prices, each price reflects the good's value to buyers and the cost of producing the
good, prices guide self-interested households and firms to make decisions that, in many cases,
maximize society's economic well-being.
1. Governments can sometimes improve market outcomes
Important role for government: enforce property rights (with police, courts, etc).
People are less inclined to work, produce, invest, or purchase if there is a high risk of their
property being stolen.
Market failure: When the market fails to allocate society's resources efficiently. Some causes are,
Externalities: when the production or consumption of a good affects bystanders.
1. A country's standard of living depends on its ability to produce goods and services
Productivity: The amount of goods and services produced from each hour of a worker's time. In
nations where workers can produce a large amount of goods and services per unit of time, people
enjoy a higher standard of living. Similarly the growth rate of a nation's productivity determines
the growth of its average income. Productivity depends on the equipment, skills, and technology
available to workers.
1. Prices rise when the government prints too much money
Inflation: An increase in the overall level of prices in the economy. Because high inflation imposes
various costs on society, keeping inflation at a low level is a goal of economic policymakers around
the world.
In almost all cases of large or persistent inflation, the culprit turns out to be the same; growth in
the quantity of money. When the government prints too much money, the value of the money
falls.
1. Society faces a short-run tradeoff between inflation and unemployment
Business cycle: The irregular and largely unpredictable fluctuations in economic activity, as
measured by the production of goods and services or the number of people employed.
Though inflation can be caused by the government printing too much money, there also some
short-term benefits that increasing the amount of money can provide. Due to the increased
amount of money, the overall level of spending is increased and thus the demand for goods and
services increases. Higher demands may, in the long-term, caused firms to raise their prices, but in
the short-term, can cause them to increase the quantity of goods produced, and hire more
workers to produce these goods and services.
The relationship between inflation and unemployment is inverse in the short-term.
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Document Summary

Seek first to understand, then to be understood. Synergize: learn to work with others to benefit all parties. Sharpen the saw: keep yourself physically, mentally and spiritually refreshed through things like exercise, reading, praying, and good work. Economy: the study of how society manages its scarce resources, eg. how people decide what to buy, how much to work, save, and spend. How firms decide how much to produce, how many workers to fire. How society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs. Going to a party the night before your midterm leaves less time for studying. Having more money to buy stuff requires longer working hours which leaves less time for leisure. Protecting the environment requires resources that could otherwise be used to produce consumer goods. Society faces an important tradeoff between efficiency and equality: to achieve greater equality, could redistribute income from wealthy to poor.

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