ECON101 Study Guide - Fall 2018, Comprehensive Midterm Notes - Opportunity Cost, Marginal Utility, Marginal Cost
12 Oct 2018
School
Department
Course
Professor
ECON101
MIDTERM EXAM
STUDY GUIDE
Fall 2018
1.3 The Economic Way of Thinking
- Key components within the economic way of thinking include choice and
trade-offs, choice and change, choice and opportunity cost, choice and the
margin, and choice and incentives
o Choice and trade-offs
▪ when we choose, we are actually making trade-off
▪ we decide to consume one item over another item
o Big trade-off: efficiency vs. equity
▪ Efficiency relates to society obtaining the most it can from
scarce resources
▪ Equity relates to distributing prosperity freely among all
members of society
o Choice and change
▪ Choices evolve over time and evolve for many reasons
• Ex: we no longer desire to consume media on videotape
or DVD, we now consume media using streaming
services
• Our preferences change, and our choices change with
those preferences
o Choice and opportunity cost
▪ Opportunity cost: the highest value alternative that we must
give up in order to get
▪ Choices have associated opportunity costs; nothing is for free
o Choice and the margin
find more resources at oneclass.com
find more resources at oneclass.com
▪ When we make a choice, we want to make the choice such
that what we gain is greater than what we give up
▪ Choices are made in small steps and influenced by incentives
▪ Small steps = margin
▪ At the margin, we are comparing marginal benefits to
marginal costs
• When we make choices, we look at the additional
benefits which is the marginal benefit, of an increase in
activity vs. the additional cost which is the marginal cost
• People will choose when marginal benefit is > than
marginal cost
o Choice and incentives
▪ Incentives influence your decisions
• Individuals will respond to rewards or penalties when
considering choice
find more resources at oneclass.com
find more resources at oneclass.com
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ECON101 Full Course Notes
Verified Note
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Document Summary
2 forms of economic coordinated systems: central economic planning and decentralized economic planning. In this course, focus is on the decentralized economic planning approach. Firm: an economic unit that hires factors of production and organizes those factors of production to produce and sell goods or services. Market: any arrangement that enables a buyer and a seller to get info. and to do business with each other. Household: an economic unit of one or more persons that provides the economy with resources. Prices withi(cid:374) (cid:373)arkets coordi(cid:374)ate the fir(cid:373)s" a(cid:374)d households" decisio(cid:374)s. Shows all the various combinations of good and services (outputs) that can be produced (and not produced) given all available factors of production (inputs) using the prevailing state of technology. The ppf is the boundary between all combination of goods and services that can and cannot be produced. Points beyond the ppf are not attainable b/c of scarcity of resources.
