EC 201 Study Guide - Fall 2018, Comprehensive Midterm Notes - Demand Curve, Marginal Utility, Marginal Revenue
EC 201
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Fundamentals
• What is Economics?
People and choices they make in a world of scarce resources, decision making
• Microeconomics vs Macroeconomics
o Micro=study of economy at small scale level (individual trees)
▪ Looking at markets, small pieces
o Macro=study of economy at a large scale (whole forest)
▪ World economy
▪ Combining all micro pieces
What are Resources?
• Copoets to ake eooy suessful
• Foundation of all productive activity
o Ex: look at everything that produces the cake not just ingredients. Need tools, process
• Factor of production (mean same thing as resource)
• Used to make something, building blocks
• Types of resource
o Land: Any natural resource in production
▪ Gift of nature (tree, physical land, water, oil, etc)
o Labor: Human resources, any physical or mental activity devoted to do something
▪ Effort people put in (Farmer,
doctor) o Capital: DOES NOT REFER TO $$$...
▪ Tool, machine, infrastructure, or knowledge used to produce goods and services
▪ Already produced but use it to produce something
▪ Physical vs Human
• Physical: Tools, machine, infrastructure
• Human: Knowledge and skills that people acquire to help with
productivity
o How is human capital differ from labor?
▪ Human capital can have knowledge
o Entrepreneurial ability: Talent or ability to combine all the other resources together
▪ E.A involves risk and organizing other resource together
• Not the same thing as human capital.. How do they differ?
▪ Necessary to develop new and better products
• People have unlimited wants..they are never satisfy
• Scarcity: Unlimited wants but limited resources
o Eoois takes idea of havig to ake hoies eause of sarity..a’t have
everything!
o Relatively Scarce
• Opportunity cost: value of the next best alternative
o Giving up something for something else
o THERE I“ NO “UCH THING A“ A FREE LUNCH
o Production
o Constant opportunity cost
▪ Not realistic
▪ Indicate if PPF has a straight line
o Implicit cost-money that you would have earned
o explicit cost- what you are paying
o CALCULATING OPPORTUNITY COST
▪ Take production of only one thing and production of only other thing
▪ Make a ratio
▪ Whatever you’re tryig to alulate opportuity ost, goes o otto o
Increasing opportunity costs: As we increase production, cost gets higher
▪ On PPF, shaped like an inward concave, bowed out
▪ ***bowed in does not exist
o Comparative Advantage: Ability to produce a good or service at a lower relative
opportunity cost than another producer
▪ Who can do something at a lower cost? Can be applied outside the PPF
▪ Specializing: because you can do something at a lower cost, you should
specialize in that, individuals should pursue in producing that one thing at a
lower cost
▪ →Trade
o
• Rational cost
o Assumptions of decision making
▪ Self interest
• Rational decision making
• People act in their own self interest to benefit themselves
▪ Marginal Decision making
• One extra decision (should I buy this one extra jacket? Even though
I have other ones)
▪ Optimization
• Optimize decisions
• Getting most value out of our decisions
• Utility: easure of soeoe’s satisfatio
• Marginal benefits (MB)
o Extra benefit of purchasing something
Document Summary
People and choices they make in a world of scarce resources, decision making: microeconomics vs macroeconomics, micro=study of economy at small scale level (individual trees) Looking at markets, small pieces: macro=study of economy at a large scale (whole forest, world economy, combining all micro pieces. What are resources: co(cid:373)po(cid:374)e(cid:374)ts to (cid:373)ake e(cid:272)o(cid:374)o(cid:373)y (cid:862)su(cid:272)(cid:272)essful(cid:863) Foundation of all productive activity: ex: look at everything that produces the cake not just ingredients. Factor of production (mean same thing as resource: used to make something, building blocks. Types of resource: land: any natural resource in production, gift of nature (tree, physical land, water, oil, etc, labor: human resources, any physical or mental activity devoted to do something. Effort people put in (farmer, doctor) o capital: does not refer to 28081$ E. a involves risk and organizing other resource together: not the same thing as human capital how do they differ, necessary to develop new and better products, people have unlimited wantsthey are never satisfy.
