Chapter 1 text outline - reflects the nominal price of a...

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MICROECONOMICS 311 CHAPTER ONE READING Microeconomics: analyzes the behavior of small units: consumers, workers, savers, managers, firms. Price Theory: another name for microecon because prices have important effects on individual decisions. A “good” theory: successfully explains and predicts the phenomena that it is intended to explain and predict. Positive Analysis: Assessing the expected, objective outcomes. It deals with propositions that can BE TESTED with respect to both their underling logic and the empirical evidence. It focuses on facts and cause-and-effect relationships and includes the development and testing of economics theories . Normative Analysis: Value Judgment. Can be proved right or wrong by facts, evidence, or logic. Markets: Involve the interplay of all potential buyers and sellers of a particular commodity or service. Nominal Price: Absolute price.—doesn’t take in time or interest or inflation. The problem with this is that the dollar is elastic. Real Price:
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Unformatted text preview: reflects the nominal price of a product adjusted for the changing value of money. Consumer Price Index: New-Old/Old – CPI measures the change in nominal prices. Economist makes three basic assumptions about buyers and sellers: 1) Market participants are presumed to be goal oriented—that is interested in fulfilling their own personal goals. 2) Market participants engage in rational behavior. 3) Market participants confront scarce resources. Explicit Cost: Money used in the pursuit of a goal that could otherwise have been spent on an alternative objective. Implicit Cost: cost associated with the individuals use of his or her own time and other resources in the pursuit of a particular activity versus alternatives. Sunk Cost: Costs that have already been incurred and are beyond recovery. Production Possibility Frontier: A depiction of all the different combinations of goods that a rational actor with certain personal goals can attain with a fixed amount of resources....
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