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Economics 201 Notes - Economics 201 Notes Chapter...

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Economics 201 Notes 9-2-11 Chapter 1 -Economics- Greek for “household management” Study of how a society chooses to use its scares resources Study of how people use their limited resources to satisfy unlimited desires Science of choice -Resources are scarce; therefore we have to make choices -What questions? What choices must be answered? What to produce? Interaction of buyers and sellers in markets shaped by laws and institutions How to produce? Conserve on the most scarce resources, use more of the abundant resources For whom? -~30’s through 60’s the gap between rich and poor was small. Everyone was getting richer. Wealth was distributed evenly -Distinction Positive economics- statement about what is, about the actual working of the economy, can be shown to be correct or incorrect Normative economics- statement about what should be or ought to be, depends on value judgments Normative statements cant be proven correct or incorrect -EC 201 is mostly positive analysis -Analytical perspective Laboratory experiment are difficult so we have to rely on interplay between theory and data -Must use “ceteris paribus” assumption all else equal -Microeconomics- smallest decision making units and interactions (household, business firms, etc.) -Macroeconomics- total aggregates Growth of output (GDP) Employment, unemployment Inflation -Microeconomics can be used to study important issues Wages and salaries Trade, tariffs, NAFTA Price of gasoline -Macro totals= micro pieces added together -Macro must rest on micro foundation 9-7-11 Chapter 2
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-Robert Frost “ Two roads diverged in a yellow wood and sorry I could not travel both…” -Michelob light ad: “yes you can have it all” (not true- you cant have it all) -Mick Jagger “You cant always git what you waant” -We can’t have it all but that does not imply that we will be miserable. We do the best we can with what we have -“I took the one less traveled by, and that has made all the difference” (good choice for him, maybe not the best choice for someone else) -Different people have different preferences therefore they make different choices -Opportunity cost If benefit is greater than cost you should do it If perfect score on pretest, benefit from post test is small If benefit is less than cost, dot do it Compare one action with others You are here so the benefit from EC 201 is greater than cost (alternatives: sleep, working out, hanging out, other class work) Opportunity cost of action A is what is given up to get A = value of next best alternative -Two possible opportunity cost Explicit out of pocket cost (pay money) Implicit costs Often explicit cost are a very important part of true opportunity costs, but not always May 2001 Baskin Robbins was giving out free (explicit out of pocket cost is zero) cone or cup -True opportunity cost= explicit cost + implicit cost -Going to concert: explicit (ticket, parking and gas) + implicit (time getting there and back)
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