Study Guides (238,202)
United States (119,689)
Economics (179)
ECON 2000 (55)
All (48)

Exam 1 Ch 1-5 (Got A+ on the test)

15 Pages
Unlock Document

Louisiana State University
ECON 2000

Economics Fall 2011 Exam 1Read Chapter 1 by Friday and do chapter 1 homework over weekendFriday Read Chapter 2 for Monday An Economic system must solve 3 problems 1What and how much to produce 2How to produce it 3For whom to produce it Making Rational Decisions Clarify goal or objective Identify all alternative paths to help you get there Evaluate the payoffs from each alternative Select the best alternative and implement your decision Net Benefit considering benefit and cost Sunk cost money you cant get back water under the bridge example Cost that has already been incurred and cant get backIce Fishing image rational decisions are different based on interests Opportunity cost highest value of next alternative the one that you didnt choose Highest alternative that must be given up to engage in an activity Making a decision and what are you losing when the choice is madeoEx Football or Party What will I get out of either Pick the one with the greatest level of satisfaction or benefit OC is what is forfeited when a choice is made what you give upCost is always less than the benefit of what you have chosenIt is the basis of costbenefit economics oIndividual decisions the OC of college includes the items you could have purchased with the money you spent on tuition and books or loss of the income from a full time joboGovernment decisions the OC of money spent on the war on terrorism is less spending on health care and educationDecisions are made at the Margin weighing the additional marginal benefits of a change and the additional marginal cost of a change with respect to current conditions Marginal benefitsadditional benefits the benefits connectedMarginal costs cost connected to consuming additional unit of a good or undertaking one or more unit of an activityAdditional benefits are benefits that come along Economics Fall 2011 Exam 1oExample Three bridges have been built and a study was done that said they cost 30 million and the benefit is 42 million dollars A politician hears this and says lets build another bridge Hes wrong because he doesnt know the price per bridge or the benefit from each bridge Politician was comparing averagesMust determine decisions by marginQuestion what will be the cost and what will be the benefit of the next bridgeBridge cost bridge 1 8 mill Bridge 2 10 mill Bridge 3 12 millBridge benefit bridge 1 16 mill Bridge 2 14 mill Bridge 3 12 millThe cost of bridge 4 14 mill would exceed the benefit 10 millMarginal changes are small incremental adjustments to an existing plan of action People make decisions by comparing costs and benefits at the margin Marginal changes in cost or benefit motivate people to respond The decision to choose one benefit over another occurs when that alternatives marginal benefit exceeds its marginal cost Economic decision rule if the marginal benefits of doing something are greater than the cost you do itIf marginal costs exceed benefits dont do it Maslows Hierarchy of NeedsPhysiological eating health sleeping survivalSafety shelter protection from dangerLove affection belongingEsteem self esteem esteem from othersSelfactualization achieving individual potential DevilAngel Shaker Marginal analysis additional cost andor benefit Marginal reasoningwhat we had to use to determine the amount of salt in the peppershakerand pepper in the salt shaker Teaspoonadditional change concentrate on teaspoon instead of shaker where we beganMarginal value is not fixed it changes depending on where you are Efficient market a market in which profit opportunities are eliminated almost instantaneouslyEfficiency marginal benefit equals marginal cost ththIndustrial Revolution late 1819 century when increases of agriculture manufacturing technologies and the development of more efficient modes of transportation led people in Britain to move from the country side to the city
More Less

Related notes for ECON 2000

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.