Lecture 1 1.07.10

Lecture 1 1.07.10 - Methodology Real World Relevant Facts...

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1. Econ: definition 2. Opportunity Cost 3. Marginal 4. Methodology 5. Scope 6. Pitfalls 7. Econ obj 1. The study of how to efficiently utilize scarce resources to satisfy unlimited wants Economics is about making choices efficiently 2. Making choices = opportunity cost Opportunity cost – the value of the next-best option forgone Sleep – 98 , leisure breakfast – 82, jogging 12, study - -2, econ-2 – 99 Profit = (Accounting) Profit ( a ) = TR – TC x TR = Total revenue = price * quantity (Economic) Profit = a – TC M Boeing = $50,000 Florist: total revenue (TR) = $500,000, Total Cost (TC x ) = $475,000
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TR – TC x = a = $25,000 Take into account implicit cost (TC m ) = $50,000 a = $25,000 - (TC m ) = $50,000 = = -$25,000 3. Marginal TC = Fixed Cost (FC) + Variable Cost (VC) FC - SC VC – MC Marginal cost = $2.99, Price = $5.99 Sell to get a revenue of $3.00 It’s not the total, it’s not the fixed, it’s the marginal that matters 4.
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Unformatted text preview: Methodology Real World Relevant Facts look for patterns, produce hypothesis, build models, develop theory, develop principles, develop law of demand Keep testing implement into a form of Policy As we move on, we become increasingly confident Use Ockhams Razor to cut out all the irrelevant facts Sale on oranges, people buy more Sale stops, people buy less Testing maybe its just in albertsons, ralphs test other places and become increasingly confident Focus on patterns, policy and in order to focus on those, we also need to focus on relevant facts 5. Scope What, How, Who Many ways to skin a cat Labor in America vs Labor in China Micro/Macro = small/large Normative vs positive Positive economics is descriptive, Normative is moral evaluation Positive is what is, normative is what it ought to be...
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This note was uploaded on 07/05/2011 for the course ECON 1 taught by Professor Nagata during the Spring '08 term at UCLA.

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Lecture 1 1.07.10 - Methodology Real World Relevant Facts...

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