CH 1 + 2 Notes

CH 1 + 2 Notes - CH 1 2 Economics Study of mankind in the...

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CH 1 + 2 Economics : Study of mankind in the organized business of life that focuses on improving our material well-being -to satisfy the biological and social wants/needs -consumption of goods/services, production of goods/services by means of economic resources - Money is not a resource , it is the medium to buy resources 4 economic resources: -Labor -Capital -Land -entrepreneurial ability (product/process innovation) -Ultimate goal of economics: try to improve well-being -Biological needs limited, yet desires unlimited -Unlimited wants/desires, yet limited resources -Many of these wants/needs are going to go unsatisfied -Prices since there are a limited amount of resources, therefore, a limited amount of goods -Scarcity explains the movement of prices: i.e. inflation, value of currency goes down, prices go up. -De Beers created artificial scarcity of diamonds -Abondence explains cheapness. Cost: -Oppurtunity cost- Explicit costs (what comes out of your pocket): Paying for something, goods. Tuition, Books, Travel, etc. -Implicit costs: (Things you give up): lost income, job experience, -(not as important) utility: cannot measure utility with prices. Same price can have different utility. -ordinal measure: measuring only one individual between items (possible) -cardinal measure: measurement between individuals (not possible) -Oppurtunity cost is not just what you lose and would have liked to done most, it is what you lose and what you like most, but what you would have actually done if you were not doing something else. -Ex: Teach English ($35), Take a Russian class (-$40) He takes Russian, therefore he pays actually $75, because he loses the explicit cost of the class ($40) and the implicit cost of what he would have earned if he taught English ($35) -Ex: What is the opportunity cost of playing computer games? (in order of most preferred) 1.Play computer games 2. Fly to Colorado 3. Study The answer is: Flying to Colorado, since it is the next possible preferred option. Ex. Chooses to go to 4-year private Uni: 4,000 tuition and then 800 in books. -Full time wage annual: 24,000. -What if he could work part time (1/2 full time) during the school year
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-Works full time during summer (neglegant, since he would be doing this either way.
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