Mid Term #1 -...

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http://tutor2u.net/economics/revision-notes/index.html MIDTERM 1 LIST OF TOPICS Intro Definition and purpose of economics o Economics is a social science (uses scientific method) that studies rational human rational human behavior facing scarcity o Goal: understand and predict human behavior Scientific method o Observation of some fact o Hypothesis – tentative description of some fact story of what causes fact, model, theory o Make a prediction o Test Prediction o Repeat is results don’t match description Theory o Set of assumptions and facts intended to explain phenomena Model o Simplification of reality in order to more easily test theory Micro o Examines individual decision makers of any size o Person, firm, country Macro o Examines decisions of aggregates, groups Positive vs normative o Positive: Positive economics is relatively scientific (testable) and focuses on value-free descriptions of and predictions about economic relationships. o Normative: Normative economics deals with values and addresses what should be rather than what is. Resource o Anything scarce used to produce something else o Resources are used to make output o Resources are scarce o Resources differ naturally and technologically in ability to produce output Marginal o Incremental, next p. 9 Utility o Happiness, satisfaction p. 250 Rational o If people knows what they want and they know how to get it then they will get it Short run o Length of time when at least one variable is fixed o Ex. how much gas to buy given a car Long run o Length of time when there is no fixed variables
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o Ex. what kind of car, or bus and amount of gas to buy Opportunity cost o What an agent gives up to do a decision o Value of next best alternative o Not money, although it may include money o Ex. no such thing as a free lunch, opp. Cost exists because of scarcity Allocative efficiency o There it is not possible to redistribute output such that at least 1 person is better off without hurting someone else o How to measure: total surplus o Economic relevance: way to measure waste in allocation of output to consumers and producers Productive efficiency o Measure of how well resources are used in production, production is efficient if point is on PPF o Not possible to reallocate resources so that there are more of one good w/o less of some other good Economic efficiency (aka efficiency, aka pareto optimality) o Measure of waste in an allocation o An allocation is prarto optimal if it is not possible to make one person happier w/o making another person sadder o Efficiency doesn’t equal equality, fairness Efficiency versus equality vs fairness vs whatever else society cares about o Know the facts and assumptions of economics Facts o F1: Resources are scarce o F2: Resources are made to produce output o F3: Resources differ naturally and technologically in ability to produce output Assumptions o
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This note was uploaded on 01/30/2012 for the course ECONS 101 taught by Professor Michalski during the Spring '08 term at Washington State University .

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Mid Term #1 -...

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