Econ1B03review - Econ 1B03 Exam Review 2009 Lecure 1-...

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Econ 1B03 Exam Review 2009 Lecure 1- Introduction to Economics Chapters 1, 2 Basic Principles of Microeconomics Economics- the study of how society allocates its scare resources to satisfy peoples unlimited wants. Microeconomics- focuses on the individual parts of the economy Macroeconomics- focuses on the economy as a whole Market Economy- decentralized allocations of resources by firms and households Command/ Centrally Planned – planned by a central authority Mixed - Canada has mixed economy Resource – anything that can be used to produce something else ( labour , land) Opportunity Cost – what you have to give up to get it Marginal Changes – small incremental adjustments to an exsistant plan , usually by 1 Adam Smith – the wealth of nations , invisible hand Equilibrium- no incentive to change Efficiently - when resources are best used Equity - fair use of resources Market Failure - when the market fails to properly distribute resources Market Power – the ability of a single entity to unduly influence the market Externality- additional factors not compensated for in traditional models. Positive Statements - world as is Normative Statements - world as it should be
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Lecure 2- Production Possibility Frontier Chapters 2 PPF - a graph that shows the possible combinations of output that the economy can possibly produce given all the available factors The ppf is always possible , but only certain combinations of product are socially desirable. It also very neatly demonstrates opportunity costs. For example: to get 600 cars, you give up 800 computers So to get 1 car you give up 800/600 = 1.33 computers However From 700 to 1000 , you give up 2000 computers So 300 cars for 2000 computers 2000/300= 6.67 The slope of ppf x , is the opportunity cost of x. Change in production choices are demonstrated by a slide along the production possibilities frontier. However changes in production capabilities are demonstrated with a changing of the line. In this example a rubber shortage will mean that fewer tires and car parts will be available, however the production of computers is not affected so the change looks like this:
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Lecure 3- Comparative advantage and Gains from Trade Chapters 3 In this chapter we explore how the advantages of trade can allow individuals to produce beyond their individual production possibility frontiers. In this hypothetical situation we are introduced to Peyton and Brett , two farmers on an isolated island. Oppertunity Cost Potato Oppertunity Cost Meat Peyton ¼ Meat 4 Potatoes Brett ½ Meat 2 Potatoes -We say that Peyton has a comparative advantage in potatoes: he has a lower opportunity cost. -We say that Brett has comparative advantage in meat because he has a lower opportunity cost. Therefore each individual should
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Econ1B03review - Econ 1B03 Exam Review 2009 Lecure 1-...

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