ECN_203_1_Overview

ECN_203_1_Overview - o National production Unemployment...

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Chapter 1: Overview
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What is Economics/ Why Study It? Economics -- study of how individuals, businesses and societies manage scarce resources (examines our choices and helps us best decision). Optimal Allocation -- best use of our scarce resources. Scarcity ( Fundamental Concept )-- resources are finite or scarce , especially relative to wants and needs.
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Opportunity Cost: It’s the Cost of Choosing Opportunity Cost -- The cost of pursuing a given choice, it’s what you give up (next best alternative). Even the simplest decisions have an opportunity cost. Your opportunity cost for coming to class today?
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Two Main Branches of Economics Microeconomics -- The study of decision making at the individual level. o Personal, Household, Business, Market Macroeconomics – The study of the overall performance of an economy.
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Unformatted text preview: o National production, Unemployment, Inflation How do we study Economics? Use economic models to make predictions. E.g. Circular Flow Model: a simplified representation of the economy. Economy-- the system of production and allocation of goods and services. E.g. Free-Market Economy CIRCULAR FLOW PRODUCT MARKETS FACTOR MARKETS HOUSEHOLDS FIRMS $ $ $ $ LABOR PRODUCTS SERVICES FACTORS PRODUCTS SERVICES LABOR FACTORS Your Model is as Good as………. . Evaluation of a model depends on its underlying assumptions . Most models start with simplifying assumptions about the world. Try to “relax” these assumptions to make model more realistic. Ceteris Paribus – “other things being equal” (i.e. hold all else constant)....
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