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Chapters 1-3 Comprehensive Notes

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ECO 304K

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Eco 304k Chapter 1-3 Notes CHAP 1 1. Ideas are Important a. GDP growth is very importat b. GDP per capitia is a good measure of standard of living c. If each year the economy grew at 1% less then it did, our economy would be cut in half d. US has biggest economy followed by euro union e. Places with better economies have i. More democracies ii. High environmental standards iii. Cool climates iv. Freedom of expression v. Womens rights vi. Better health vii. Taller viii. Less corrupt ix. Lower income inequality x. Less inflation xi. Less pop growth 2. What is economics about? a. Econ is a way of thinking about an issue not just a dficipline that has money as its chief focus 3. Micro vs. Macro a. Micro- The decision making by individuals, businesses, industries and governments i. More of an individual thing like which house to buy or which shoe to buy b. Macro-The broader isssues in the economy such as inflation, unemployment and national output of goods and services i. Affects everyone as a group, like more inflation 4. Econ theories and Reality a. Model building i. Stylized- economists boil down the facts to their basic relevant elements and use assumptions to develop a stylized (SIMPLE) model to analyze the issue b. Ceteris Paribus- all else held constant/other things equal 5. Efficiency versus equity a. Efficiancy- how well resources are used and allocated. Do people get the goods and servces they want at the lowest possible resource cost? i. Production Efficiency- occurs when all goods are produced at the lowest possible cost ii. Allocative efficiency- occurs when individuals who desire a product the most get those goods and services-those with a desire to pay mmore b. Equity- The fairness of various issues and policies 6. Key ideas of Economics a. Choice and Scarcity Force Tradeoffs i. Scarcity- Our unlimited wants clash with liimitied resources leading to scarcity. Everyone faces scarcity because, at a minimum, our time is limited on earth. Economics focuses on the allocation of scarce resources to satisfy unlimited wants b. Opportunity Costs Dominate our lives i. Opportunity Costs- Benefits vs. costs, when we decide to do one thing another thing must be given up c. Markets are efficient i. Free markets work because hey don’t allow for the company to rip off their customers because then another company will jump in and steal the customers d. Market Failure i. Some things like pollution is not solved by the free market it needs government 7. 4 FACTORS OF production a. Land / Rent b. Labor/ Wages c. Capital/ interest d. Entrepreneurship/ Profits Chap 2 8. We live in a consumer world 9. Basic Economic Questions a. What goods and services are to be produced? b. How are these goods and services to be produced? c. Who will receive these goods and services? d. Distribution refers to the way an economy allocates to consumers the goods and services it produces 10. Economic Systems a. Market/capital- private owns most of the stuff b. Laissez faire- leave it alone or minimal gov’t c. Planned economies- socialist or communist, owned by th esate 11. Resources Production and Effficiency a. Production- turning resources into products and services people want b. Resources- Land labor, capital, entrepreneurial ability c. Land- land in usual sense but also includes all other natural resources used in production d. Labor- mental and physical talents of people e. Capital- includes all manufactured products that are used to produce other goods and services f. Entrepreneurial ability- combine land, labor and capital to produce goods and services and assume he reisks associated with running a business g. Production efficiency- occurs when the mix of goods society decides to produce is produced at the lowest possible resource or opportunity cost h. Allocative efficiency- occurs when the mix of goods and services produced is the most desired by society 12. Production Possibilities and Economic Growth a. Production Possibilities Frontier PPF- all the product possibilities of wht you can make with the resources you have, and how making more of one thing will cut the amount you can make of the other thing i. It is a curve on a graph, to the left of the curve is at
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