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ECON 1000 Study Guide - Marginal Revenue Productivity Theory Of Wages, Average Variable Cost, Marginal Revenue


Department
Economics
Course Code
ECON 1000
Professor
Sadia Mariam Malik

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ECON 1000
Final Exam-AID
Review Package
Course Coordinator: Xiaoqian (Vivian) Chen
Coordinator E-mail:xchen14@schulich.yorku.ca
Tutors: Annie Mac & Michael Yeung

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Preface:
This document is directed to ECON 1000 students at York University whom are looking for an additional
resource to aid them with studying for the course final exam. It has been created with regard to the Winter
2010 course. This package covers materials from Chapter 1 to Chapter 8.
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! Scarcity arises because we have limited resources but unlimited wants
! The choices that we make depend on the incentives that we face. An incentive: a reward that encourages or penalty
that discourages an action.
Economics: a social science that studies the choices that individual, businesses, governments and entire societies make as
they cope with scarcity and the incentives that influence and reconcile those choices.
! two main parts: Microeconomics and Macroeconomics
Microeconomics
! Microeconomics study of choices that individuals & businesses make, the way choices interact in markets, and
influence of governments.
Macroeconomics
! Macroeconomics study of performance of the national economy and the global economy.
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o How do choices end up determining what, how and for whom goods and services get produced?
o When do choices made in the pursuit of self-interest also promote the social interest?
What, How & For Whom
! Goods & Services the objects that people value and produce to satisfy human wants.
What : determines the items that we produce
How
! factors of production:
o Land is the natural resources
o Labour is the work time and work effort
! human capital, which is the knowledge and skill that people obtain.
o Capital is the tools, instruments, machines, buildings that businesses use to produce goods and services.
o Entrepreneurship is the human resource that organizes labour, land, and capital.
For Whom: depends on the income that people earn. The more income a person has, the more s/he has to spend on goods and
services. We generate income from the factors of production that we own:
! Land earns rents
! Labour earns wages
! Capital earns interest
! Entrepreneurship earns profit.
What, How and For Whom Tradeoffs
Tradeoff is an exchange when we give up something to get something else
“What” Tradeoffs
! What goods and services get produced depends on choices made by each one of us, by our government, and by the
business that produce the things we buy

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“How” Tradeoffs
! How goods and services get produced depends on choices made by the businesses that produce the things we buy.
“For Whom” Tradeoffs
! Big tradeoff the tradeoff between quality and efficiency
Opportunity Cost
! The highest-valued alternative that we give up when we choose to take one course of actions over another
! Central idea of economics: every choice involves a cost.
Choosing at the Margin
! The benefit that arises from an increase in an activity is called marginal benefit
! The cost of an increase in an activity is called marginal cost.
! Choosing at the margin means to allocate your resources towards the actions that bring you greater benefits than
costs
Responding to Incentives
! A change in marginal cost or benefit changes the incentives that we face and leads us to change our choices.
! The central idea of economics is that we can predict how choices will change by looking at changes in incentives
! Less of an activity is undertaken when its marginal cost rises or marginal benefit falls and vice versa
Human Nature, Incentives and Institutions
! Economists take human nature as given and view people as acting in their self-interest.
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! Positive statements
o What is statements
o They might be right or wrong, and can be tested using facts
! Normative statements
o What ought to be statements
o These statements cannot be tested
Unscrambling Cause and Effect
! Ceteris paribus is a Latin term that means “other things being equal” or “if all other relevant things remain the
same
! Economic model: a description of some aspect of the economic world that includes only the necessary features for
the purpose at hand.
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Time-series graph shows the trends and fluctuations in a variable over time
Cross-sectional graph shows how the value of a variable changes across the members of a population
Scatter diagram shows the relationship between two variables (ie. Positively related, negatively related, or unrelated)
Slope of a relationship:
o Positive relationship: upward-sloping curve
o Negative relationship: downward-sloping curve
o Change from positive to negative: has a maximum point
o Change from negative to positive: has a minimum point
t
Slope of a relationship
o Calculated be taking the change in value of the variable measured on the y-axis divided by the change in
value of the variable measured on the x-axis
Slope = (change in y) / (change in x)
o Straight lines (both horizontal and vertical) have constant slopes
Maximum
point
Minimum
point
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