Review1SlidesOct10.pdf;JSESSIONIDVISTA=5rsvM3bVQngb604C9wpZJrvQKytQJc9CFJQrFtqW7dRGNPSTqLFs!-1523347

Review1SlidesOct10.pdf;JSESSIONIDVISTA=5rsvM3bVQngb604C9wpZJrvQKytQJc9CFJQrFtqW7dRGNPSTqLFs!-1523347

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The Economic Way of Thinking Choices and Tradeoffs The economic way of thinking places scarcity and its implication, choice , at centre stage. It assumes people are rational That means, given their ends, they choose the best means of achieving them You can think about every choice as a tradeoff an exchange—giving up one thing to get something else. For example guns vs butter, college vs getting a job, one date vs another
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Definition of Economics 1. Assumes agents are rational 2. Choose subject to a constraint 3. Markets or some other mechanism provides incentives that make their choices consistent Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.
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Two kinds of economics Microeconomics Microeconomics is the study of choices made by individuals and businesses, and the influence of government on those choices. Macroeconomics Macroeconomics is the study of the effects on the national and global economy of the choices that individuals, businesses, and governments make.
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An individual choice problem Figure 8.1 shows Lisa’s budget line. Lisa has $30 a month to spend and she buys two goods: movies and pop. The price of a movie is $6 and the price of pop is $3 a six pack. Lisa’s budget line constrains her choices.
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Society’s choice problem –what to produce Points inside and on the frontier, such as points A , B , C , D , E , F , and Z are attainable. GUNS Points outside the frontier are unattainable. BUTTER
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Two Big Economic Questions Two big questions summarize the scope of economics: ± How do choices end up determining what , how , and for whom goods and services get produced? ± When do choices made in the pursuit of self interest also promote the social interest ?
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The Economic Way of Thinking Opportunity Cost Thinking about a choice as a tradeoff emphasizes cost as an opportunity forgone. The highest valued alternative that we give up to get something is the opportunity cost of the activity chosen.
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Economics: A Social Science Economists distinguish between two types of statement: ± What is—positive statements ± What ought to be—normative statements A positive statement can be tested by checking it against facts A normative statement cannot be tested.
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Production Possibilities and Opportunity Cost Opportunity Cost If we move along the PPF from C to D the opportunity cost of the increase in pizza is the decrease in CDs.
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Figure 2.2 illustrates the marginal cost of pizza. As we move along
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This note was uploaded on 12/06/2010 for the course PSYCH PSYC 1000 taught by Professor Atkinson during the Fall '10 term at UWO.

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Review1SlidesOct10.pdf;JSESSIONIDVISTA=5rsvM3bVQngb604C9wpZJrvQKytQJc9CFJQrFtqW7dRGNPSTqLFs!-1523347

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