Midterm 1 Topic Review

Midterm 1 Topic Review - ECON 251: Spring 2011 Topical...

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ECON 251: Spring 2011 Topical Review for First Midterm (Chapters 1 - 5) MW Class: ** omit Chapter 5 The following is a review of the topics we have covered and should serve as a review tool. The list may not be definitive. 1. Introduction to Economic Theory Defined Economics Economics is a science that analyze how individuals behave in the community of scarcity Defined Positive vs. Normative Analysis Positive: objective, factual, testable Normative: subjective, opinionate Derived the Elements in the construction of Theory 1. Abstraction: simplify our thinking; give us an understanding of the most likely outcome 2. Definition: define terms to avoid uncertainty or confusion 3. Assumption: assume 4. Implication: follow by assumption, if….then… 5. Adoption of theory: test theories by observing the reality Defined Marginal Analysis How small changes associate with an additional unit change: marginal cost, marginal value, marginal revenue 2. Basis of Economics Defined Goods, Scarce (Economic) Goods, Free Goods, Resources ( labor, land and capital ) A good is: Anything (material or non-material) That an individual wants To have more of At zero price Defined Basic assumptions of Scarcity 1. Human beings have unlimited wants 2. Resources are limited Scarcity is when amount wanted is greater than amount available Derived Implications of Scarcity [3C’s: Choice, Cost, Competition] Scarcity Society Choices: What to produce? Find the output to maximize society value How to produce? Find the optimal mix of inputs to maximize outputs For Whom to Produce? Who get the goods? Choice: people must choose which goods to acquire due to limited resources Cost: since resources are limited, producing one good means less of another good (economic cost) Competition: it is a method to allocate resources or compete the use of resources Defined Economic (Opportunity) Cost. Personal value of the highest alternative given up to acquire one thing 1
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Derived the Forms of Competition Violence Social/Political: compete on the basis of some limited behavior or characteristic Economic/Market (broadest way) Derived Implication: Life is Not Fair ! 3. Derived the Circular Flow diagram of the Economy Assumptions of household and firm decision making Household: What good to purchase from production market and what job I take in resource market? Maximize utility Firm: What products to produce for production market and what inputs to take to match customers taste? Maximize profit Defined profit: π = TR - TC ( profit = total revenue (price*quantity)– total cost) Defined product markets and resource markets and what is being exchanged
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This note was uploaded on 04/09/2011 for the course ECON 251 taught by Professor Tontz during the Spring '10 term at USC.

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Midterm 1 Topic Review - ECON 251: Spring 2011 Topical...

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