Economics_2030_Exam_1-1

Economics_2030_Exam_1-1 - Economics2030Exam1 A...

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Economics 2030 Exam 1 Economics and Economies A. Economics : studies of how societies prevision themselves with the material means of existence (how we get  stuff.) B. Questions : What?=  Water, computers, furniture, etc. How?=  How are we going to make these  things? Land, people, machines, etc. For whom?=  Who gets this stuff? Consequences=  Consequences on society C. D. Markets:  don’t have to represent a physical place (ordering online). Market refers to a set of social behavior; a  social relationship where goods and services are exchanged for money. E. Microeconomics:     we focus on the behavior of individual business relationships. F. Macroeconomics:  deals with consequences, the big picture. Ex. Employment, unemployment, economic  growth, production of good and services, inflation, etc. Economic Reasoning Opportunity Cost=  everything we do cost something (monetary and nonmonetary). Economists believe that  you list all of your opportunities and you choose the best; doesn’t mean it turns out like this. Margin=  choices made on the margin. The margin makes us not go over the limit. These decisions are made  with small limits. These are “how much” decisions, not the “what” ones. Rationality=  we always try to choose the most rational choice, the best option. A. Examples of Economic Reasoning   - Bibi is a poor college student who tutors on Friday and Saturday nights for  money. She wants to go to a concert. She buys the ticket, which cost her $75, but she forgets and has to tutor  the night of the concert. She can do one or the other. -Either or choice: o Tutor: Benefit= $60 (2 X $30)  OR o Concert: Benefit= Perceived pleasure o In this scenario, the $75 is not a relevant cost, but a sunk cost. She loses it no matter what. o Sunk cost= something that is not recoverable. o Relevant cost= something to gain or lose. o Rational decision : -Go tutor if $60 is greater than or equal to perceived pleasure. -Go to concert if perceived pleasure is greater than or equal to $60. o If they were equal, she would be rational no matter what choice she made. o Change:  What if she had just heard about the concert while she was going to tutor and it was still $75. - Now the $75 is a  relevant cost  because she hasn’t bought the ticket yet. - Rational:  - Tutor if $135 (75+60) is greater than or equal to perceived pleasure. -
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This note was uploaded on 10/01/2010 for the course ECON 2030 taught by Professor Bong during the Spring '07 term at LSU.

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Economics_2030_Exam_1-1 - Economics2030Exam1 A...

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