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[CAS EC 101] - Final Exam Guide - Comprehensive Notes for the exam (85 pages long!)


Department
Economics
Course Code
CAS EC 101
Professor
Michael Manove
Study Guide
Final

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BU
CAS EC 101
FINAL EXAM
STUDY GUIDE

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What is Economics?
Economics is the scientific study of human behavior associated with the production and
distribution of the “necessities and conveniences of life”
“necessities and conveniences of life” refers to the goods and services that people need
or want (bread, clothes, music)
Production is the transformation of goods and services (inputs) to other goods and
services (outputs)
Production is necessary because sometimes people find output (pizza) more
valuable than the input (ingredients)
Outputs can be used as inputs as well
Distribution-- in primitive economies, people produce for themselves and consume most
of their own products, but in more complex economies, efficient specialist producers use
large quantities of inputs to produce large quantities of outputs
Outputs must be distributed to consumers
Retail stores, trucks are forms of distribution
In order to live, factory owner must distribute his/her product in return for
necessary goods and services
Human Behavior-- Economics is NOT about production technology, not a study of things
people buy, but it is about how people organize themselves for the production and
distribution of goods and services
It is also about what people do in order to create necessities and conveniences
Scientific Study-- not about how to run a business or make money, it is an observational
science, like astronomy or meteorology
Experiments less common, but they use models as a basic tool (usually
mathematical models)
Important Economic Concepts:
Wealth-- refers to the capacity to create valued goods and services
Physical capital-- buildings, roads, machines, ships, cars, stores, warehouses full
of goods that are important to producing
Human capital-- education and training (educated people are more productive)
Social capital-- productive social networks/relationships. Trust in other people
and good government are important types of social capital
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Economists want to understand why some societies have far more wealth than
others
Economic agents-- economic jargon for people who play an active role in the economy
Households-- individuals living alone, small group making joint economic
decisions
Firms-- individuals producing alone or groups of people producing together
BU produces education
Governments-- group of people who jointly regulate households and firms
Specialized firms that have powers societies and individuals don’t have
supply/produce public goods
Households, firms, and governments composed of the same people, but in
different roles
Absolute Advantage--suppose there are two firms, Firm A and Firm B
Firm A has absolute advantage in producing a good if A can produce it using a
smaller amount of resources than B ( more efficient)
Comparative advantage--suppose each firm uses its resources to produce two goods,
shirts and pants…
If a firm wants to produce another shirt with the same resources, then there’s
opportunity cost… it has fewer pants because it used most of its resources for
shirts
The firm with the smaller opportunity cost of producing shirts has a comparative
advantage (less you have to cut down on producing one item gives you a greater
advantage)
Specialization-- total production can be increased if firms specialize in producing goods
in which they have a comparative advantage
Absolute advantage is NOT a good guide to specialization
Pg 24-29 in book
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