Microeconomics 202 Notes

Microeconomics 202 Notes - Microeconomics 202 Notes...

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Microeconomics 202 Notes -According to sociology, “economics” is the study of human behavior. According to Mankiw, “economics” is the study of how society manages scarce resources. Scarcity implies that choices are necessary, whether they are monetary (buy a Coke?) or nonmonetary (sleep an extra hour?). Money and time, especially, are considered limited resources! Think about it, people sometimes place value on nonmonetary things such as an extra hour of sleep. - Microeconomics deals with the choices that are made by us as individuals (decentralized). (However, sometimes the government does make some choices for us). Any human choice has cost, and human behavior is the outcome of choices (so economics is actually the study of human behavior!). All choices are costly, nonmonetary ones being graded in terms of forgone opportunities, and they are sometimes referred to as opportunity costs because you always give up something in order to select something else. - Opportunity cost is the value you give up when you make a choice. If you buy a house rather than an apartment, the value of the apartment is the opportunity cost. Mankiw’s three reasons to study economics: 1. Understand the world 2. Make better economic decisions 3. Be able to assess economic policies. He missed that it will make you more fun! So instead of counting jobs, we should make every job count. We will occasionally hit a soft spot when we have a mismatch of supply and demand in the labor market, but that is temporary. Look at Macroeconomics notes for pgs. 3-12 (same material). If you put skilled workers in a different industry then what they are skilled in, the opportunity cost to produce that different good will be high. There is a low opportunity cost to produce the less available good as compared to the more available good since the more available good will be less in demand. A technological advance in the computer Industry enables the economy to produce more computers for any given number of cars. Making economic policy in a representative democracy is a messy affair-and there are often good reasons presidents (and other politicians) do not advance the policies that economists
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advocate. Economists offer crucial input into the policy process, but their advice is only one ingredient of a complex recipe. When analyzing economic data, graphs provide a way of finding how variables are in fact related in the world. Because economists are usually concerned with the relationships between variables, they need to display two variables on a single graph, and, therefore, they need to use the coordinate system. Two variables that move in the same direction are said to have positive correlation (opposite direction equals negative correlation). Rationality, Margins, and Incentives: The margin is the unit over which you make the
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Microeconomics 202 Notes - Microeconomics 202 Notes...

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