econ 201 - notes to go online - Notes Bold material...

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Notes Bold material provides a class outline. Non bold material is explanatory and meant to aid in your understanding of the bolded material. Anything (for example, green highlighted material from chapter 2) in the notes but not covered in class or in the book, will not be included on the exam. Chapter 1 1. The author is a very famous economist. 2. Economics : Analyzing in terms of costs (negative incentives) and benefits (positive incentives). 3. Tradeoffs and Opportunity Cost. a. College tradeoff: money (tuition, an explicit cost) + time (an implicit cost) for education i Downstream, time results in lost financial opportunities (less money) and education results in gained financial opportunities (more money). ii Opportunity Cost = implicit costs + explicit costs 1. You can call “opportunity costs”: “total costs,” “costs,” or “what you give up.” 2. Opportunity Cost = $220,000 a. Tuition = 4 x $30,000 = $120,000 b. Lost Financial Opportunities = 4 x $25,000 = 100,000 i. Your investment is as big as your parents. 4. Marginal a. Think of marginal as incremental. b. Economists frequently think in terms of how much of something to do. To answer this question, thinking in terms of marginals is useful. i What you gain versus what you lose by undertaking one more of a given action. 1. How much time to study. 2. How much money to spend on CDs versus everything else. c. The decision on how many hours to work part time during school. i Add an additional hour of work so long as the benefit (wage) is greater than the cost (lost lifetime earnings based on reduced probability of getting a good job). 1. Less studying lower exam grade lower gpa lower chance of getting a good interview lower probability of getting a high paying job. 2. Its likely that the cost of each hour spent working increases with each additional hour. a. Go through an example. 3. While its not so obvious that one hour has an effect on your future job, its more clear that 40 hours has an effect. Well if 40 hours has a large effect, that its probably true that each additional hour up to 40 has some kind of effect on your probability of getting a good job. 5. A good way to understand the invisible hand is to think of the heavy hand of the Soviet Union. Without government intervention, the economy manages ok all by itself. An unregulated (or little regulated) economy does not result in total chaos.
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a. The free market provides incentives for people to work hard and sell things. b. A centrally planned economy removes many incentives to work hard. c. Centrally planned economies have proven to be very less efficient than market based economies. However, that’s not to say that there isn’t an important role for the government to play in a modern market based (capitalist) economy. 6. Prices allocate goods – they tell producers how much to sell and consumers how much to buy.
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