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ECON 102 (59)
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Chapter 1

ECON 102 Chapter 1 Notes

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ECON 102

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ECON 102- Microeconomics Chapter 1 Notes 1. Foundations for making decisions using the tools of economic thinking a. Benefit- sense of accomplishment b. Cost- monetary and physical risk c. Tradeoffs- the giving and taking for one event to occur as the other cannot because time is taken to accomplish the first event and not the second d. Regulation- Managing all your time 2. Economics involves different kind of decisions a. Small everyday individual decisions i. Clothes to buy/ food to eat b. Major decisions made by the President c. Decisions made impact everyone not just ourselves WHAT IS ECONOMICS ABOUT? 1. Economics- is about making choices. Econ studies how individuals, firms, and societies make decisions to maximize their well-being given limitations. a. Addresses the problem of Scarcity i. Scarcity- the issue of too many wants but too few resourcs to achieve them all 1. Refers to the fact that one must make choices given the resource limitations she or he faces 2. Limitations- are things that prevent us from having everything we want. a. Money is a limitation because we have a limited amount of it. We can only get a certain amount of money because we can only give a certain amount of our time b. Economics is a way of thinking about an issue and not just money 2. Incentives- the factors, both good and bad, that influence how people make decisions. a. How people respond to incentives is where econonmics comes in b. Most economic questions are about how rationale people respond to incentives in specific situations 3. Microeconomics- deals with decision making by individuals, businesses, industries and governments. (I=individual entities) a. Concerned with the issues of what choices individual consumers should make i. Such as what orange juice to buy b. Also concerned about what businesses should produce and at what price i. Business labor laws ii. Health care policies c. Concerned with if a market should be regulated or left alone 4. Macroeconomics- focuses on the broader issues we face as a nation (a=total or aggregate entities) a. Focus is on i. Prices of all goods and service rises ii. Concerned with inflation- general price increase economy wide iii. Unemployment iv. Broad aggregate entities 5. Economic theories a. Model Building i. Start with stylized 1. Economist boil down facts to their basic relevant elements and use assumptions to develop a simpler (stylized) to analyze an issue ii. Begin with simplest model and gradually get the model to be more complex and more difficult b. Ceteris Paribus:All Else Held Constant i. Ceteris Paribus basically means holding all other things equal 1. Holding important variables constant a. How many songs I download a month and my income will be the ceteris paribus to help the model work c. Models created and then tested. If one fails start over with new model 6. Efficiency- how well resources are used and allocated a. Production Efficiency- Occurs when goods are produced at the lowest possible cost b. Allocative Efficiency- Occurs when individuals who desire a product the most get the goods and services 7. Equity- fairness 8. Positive Questions- questions that can be answered using information or facts 9. Normative Questions-Aquestion that is based on societal belifs on what should or should not take place KEY PRINCIPLES OF ECONOMICS 1. Principle 1: Economics is concerned with making choices with limited resources a. Economics is about making decisions on allocating limited resources
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