Economics Study Guide Notes for Quiz 1.odt

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ECON 1116
Osborne Jackson

CLASSNOTES Lecture 1: Scarcity: economic problem Three types of economic systems: traditional, command, market Positive: there is a ‘right’ answer: “is” What to produce? How to produce it? For whom to produce? Normative: opinionated, value judgements, “should” Pareto Efficiency: if we cannot reallocate resources to make 1 person better off without making another person worse off – “most efficient” Efficiency ≠ Equity Gains from trade Specialization Lecture Two: Models: Parsimony: sufficiently realistic but not overly complicated...judge how useful a model is Production Possibility Frontier Assumptions: two goods produced, common inputs that are limited in supply Trade-off: cost-benefit comparison with every production decision Absolute advantage: one producer can produce the most of a good (compared to other producers), based on quantity Comparative advantage: a company is better at producing one good over another good, based on opportunity cost Opportunity cost: the value of the best opportunity forgone (give up over gain) -slope of PPF graph Increasing opportunity cost: opportunity costs usually increases because the inputs that are best adapted for one good get used up Marginal analysis: look at decisions incrementally (one by one) Movements along PPF: reallocation of resources Shift of PPF: technology improves production of good ie: symmetric, assymmetric Lecture Three: Competitive Market Economic System: • no centralized planner • producers & consumers: price-takers • allocation through assigning property rights, voluntary exchanges, prices Diminishing marginal returns: you value the second cookie less than the first cookie Marginal opportunity cost social/societal/soc: line is made of the horizontal sum of the other opportunity cost lines, as you produce more it increas
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