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Chapter 1-33

Complete Notes Covering from Chapter 1 to 33 (got 95%)

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Department
Economics
Course Code
ECON 110
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All

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Chapter 1 What is EconomicsEconomy a system in which scarce resources such a labour land and machines are allocated among competing usesAn economy is elf organizing in the sense that when individual consumers and producers act independently to pursue their own selfinterests there is a spontaneous economic order Main Characteristics of Market Economies Self Interest individuals pursue their own selfinterest buying and sellingIncentives people respond to incentivesSellers usually want to sell more when prices are high buyers usually want to buy more when prices are low Market Prices and Quantities determined in free markets in which wouldbe sellers compete to sell their products to wouldbe buyers Institutions governed by a set of institutions largely created by government Economics is the study of the use of scarce resources to satisfy unlimited human wantsProduction possibilities boundary illustrates three concepts scarcity choice and opportunity costScarcity is indicated by the unattainable combinations outside the boundary by the need to choose among the alternative attainable points along the boundary and the opportunity cost by the negative slope of the boundaryMicroeconomics the study of the causes and consequences of the allocation of resources as it is affected by the workings of the price systemMacroeconomics the study of the determination of economic aggregates such as total output price level employment and growthConsumers and producers who are maximizers make marginal decisionswhether to buy or sell a little bit more or less of the many things that they buy and sellSpecialization of labour specialization of individual workers in the production of particular goods and services Globalization has allowed an increasing share of jobs and incomes is createdTraditional Economy behaviour is based primarily on tradition custom and habitYoung men follow their fathers footsteps stick to traditional patterns Command Econony Central authority government chooses what to produce and how to produce itFree market economic decisions are made by private households and firms Mixed Economy combines elements of all three systems in determining economic behaviour Chapter 2 Economic Theories Data and GraphsNormative statements a statement about what out to be as opposed to what actually isDepend on value judgements and cannot be evaluated solely by a recourse to facts Positive statements do not involve value judgementsA statement about what actually is as opposed to what out to be Positive statements need not be true the inclusion of a value judgement in a statement does not necessarily make the statement itself normative Actual factspositive necessary to assess the truth of the statementnormativeDisagreements among economists Disagreements occur within economists because of poor communication economists will also disagree with failure to acknowledge the full state of their ignorancemany are based on the positivenormative distinction where economists have different values and normative views play a large part in most discussions of public policyimportance of individual responsibility and argueThe world is so complex and no issue can be settled beyond any about economists rarely agree unanimously on an issueEconomists try to understand the world by developing theories and models that explain some of the things that have been seentheories are constructed to explain things theories are distinguished by variables assumptions and predictionsfor example the demand and supply theoryVariablesA welldefined item such as the price or quantity of a commodity that can take on various specific valuesvariable one whose value is determined within the theory exogenous variable influences the endogenous variables but is determined outside the theoryExample price of eggs and quantity of eggs are endogenous variables in our theory of the egg market the weather is an exogenous variable because it doesnt influence the market for eggs but can effect number of eggs consumers demand or producers supply Assumptionsconcern motives directions of causation and conditions under the theory is meant to apply motives everyone pursues their own selfinterest when making economic decisions individuals maximize their utility while firms try to maximize their profitsdirection of causation when economists assume that one variable is related to the other they assume a causal link between the two Example supply of eggs that producers want increases and price of their chicken feed falls causation runs from the price of the chicken feed to the supply of eggsConditions of Application All theory is an abstraction from realityIf it were not it would merely duplicate the world in all its complexity and would add little to our understanding of it Maximizing profit is a hypothetical way in order for economists to make predictions Predictions propositions that can be deduced from it hypotheses ModelsCan be using visual aspectscircular flow of income and expenditure and the production possibilities boundary Or use model for specific quantitative version of a theory decrease in the price of chicken feed will lead to an increase in the quantity of eggs suppliedScientific approach is the central of the study of economicsEmpirical observation leads to the construction of theories theories generate specific predictions and predictions are tested by more detailed empirical observation Theory and observation are in continuous interactionTheories are tested with facts and constantly modified to achieve a superior theoryDeveloping theoriesRejection Versus Confirmation theory designed to explain observation X will
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