Exam 1 Lecture Notes - Sarah Sherr ECO 2023 Principles of...

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Sarah Sherr ECO 2023: Principles of Microeconomics Professor Mark Rush Exam 1: Lecture Notes Basic Principles Microeconomics - The study of individual firms, consumers, and markets within the economy. Macroeconomics - The study of the aggregate (overall) economy. Gov’t policy, recession, etc. 3 Big Questions What? What goods and services will be produced, and in what quantities? How? How will the goods and services be produced? Who? For whom will the goods and services be produced? 3 Big Answers Tradition: The answer to the questions above this year is the same as the answer last year. No economy can be run strictly by tradition, if something changes it no longer works. (ie drought). Probably played a bigger role in ancient societies. Command: Economic (government) planners devise the answers to the questions and then create plans given to the producers, to implement/carry out the plans. Command economies don’t tend to the needs of individuals, cannot be precise. Prices, Markets and Property Rights: Property Rights are socially determined legal rights of ownership. Our Economy: Prices, Markets, Property rights Property rights : Socially determined legal rights that govern the use of and disposal of property. o Create incentives. o Pay students less to flip burgers, but get same amount of work done to pay brain surgeons more to do the same exact task. Is there a case where to social interest overcomes self-interest? o choosing solar (more expensive to obtain) energy over coal (most cheaply obtained energy) Production Possibility Frontier Production Possibilities Frontier (PPF) shows Maximum Possible Production Variables: A student that socializes (dates, assume one hour), and studies (measured by GPA value). Anything that lies outside the curve is unattainable.
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Anything that lies on the curve is attainable, and utilizes complete efficiency. Production Efficient . Anything that lies within the curve is attainable, but has some level of inefficiency. Production Inefficient . PPF can bump in if technology regresses, or resources deplete Our economy is usually ON the PPF, otherwise it is extremely close to it. Opportunity Cost Opportunity Cost : The opportunity cost of an action...is the next best alternative, forgone. o EX: When deciding to go get pizza, the opportunity cost is the tacos and burgers that you aren’t eating. o Increase doesn’t have to be correlating o PPF shifts with resource changes and other factors Possibilit y Machine Gumball s Opportunity Cost of a Gumball (Lose / Gain) A 10 0 B 9 1 1 Machine / 1 Gumball C 7 2 2Machines / 1 Gumball D 4 3 3 Machines / 1 Gumball E 0 4 4 Machines / 1 Gumball Gum Increases, Opp Cost Increases (of a gumball): How? First would move workers who are bad at making machines, good at making gumballs. Then would gradually have to have those who are bad at making gumballs, make gumballs.
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