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Study Guide

ECON 101- Midterm Exam Guide - Comprehensive Notes for the exam ( 13 pages long!)


Department
Economics
Course Code
ECON101
Professor
Corey Van De Waal
Study Guide
Midterm

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UW
ECON 101
MIDTERM EXAM
STUDY GUIDE

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Econ Chapters 1&2
What is economics?
Economics is the social science that studies the choices that individuals, businesses,
governments and the entire societies make as they cope with scarcity and the incentives
that influence and reconcile those choices.
2 parts to economics:
Microeconomics: Study of the choices that individuals and businesses make, the way these
choices interact in markets, and the influence of governments.
Macroeconomics: Macroeconomics: The study of the performance of the national and
global economies
o Why is the unemployment rate in Canada so high?
2 big economic questions:
How do choices end up determining what, how, and for whom goods and services are
produced for?
Do choices made in the pursuit of self-interest also promote the social interest?
Answer to question number one:
What… what we produce varies around the world and changes over time
How… how we produce is described by the technologies and resources we use
o Factors of production
-Land: Fertility, mineral, deposits, vegetation, animal, life, other natural resources
employed in the production of goods and services
-Labor: Accounts for human mental and physical contribution to the production of
goods and services (Quality of labor depends on the human capital e.g.
knowledge, skills)
-Capital: Fabricated inputs such as machinery and equipment employed in the
production of goods and services
-Entrepreneurship: Accounts for human resources involved in organization land
labor capital to the production of goods and services
- Whom… who consumes the goods and services depends on the incomes that people earn
People earn incomes by selling the factors of production they one
-Land earns rent
-Labor earns wages
-Capital earns interest
-Entrepreneurship earns profit
70% of the income made comes from labor
Answer to question number two:
- Self-interest; choices you make that is the best one available for you, usually your choice could
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end up achieving an outcome that is best for everyone.
- Social Interest; The outcome of your choice is in the social interest if it is the best for the
society as a whole
- Efficiency and the Social Interest; used to described a situation that can’t be improved upon,
resource use is efficient if it is not possible to make someone better off without making someone
worse off
- Fair Share and the Social Interest; If fair shares are available it is in the best interest for
everyone
4 issues in today’s world
1) Globalization
-Expansion of international trade, borrowing and lending, and investment e.g. Nike
shoes made in Malaysia is not the best form of social interest
2)Information-Age Monopolies; The technological change e.g. Bill Gates creating computers and
selling them at such a price way above the cost of production
3)Climate Change; Each day burning fossil fuels to create electricity and power airplanes etc is
in your self-interest
4) Economic Stability; It is in the governments and banks hand to make choices that will be in
the best social interest for everyone
Market:
Area in buyers and sellers negotiate exchange of a commodity
Choice or tradeoff:
Giving up one thing to get something else
Making a rational choice:
One that compares costs and benefits and gains the greatest benefits over cost
Benefit; what you gain:
Benefit is the pleasure that the choice brings to you
Cost; what you must give up:
Opportunity cost of something is the highest valued alternative that must be given to get
something, some opportunity cost are greater than others but more over can benefit you
more in the long run
How much? Choosing a margin:
Marginal Benefit, marginal cost… sometimes the choices we make only happen if the
marginal benefit is greater than the cost
Choices respond to incentives:
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