Econ 1 - Top-1 with added problems

Econ 1 - Top-1 with added problems - Econ 1 ELEMENTS OF...

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Econ 1 – ELEMENTS OF ECONOMICS 1 LECTURE NOTES Foster, UCSD 7-May-09 TOPIC 1 – INTRODUCTION TO ECONOMICS A. Terminology 1. Definitions: a) What is Economics? 1) Study of production and distribution of goods and services, and of the distribution and spending of incomes earned in that production. 2) Study of allocating scarce (limited) resources among alternative uses so as to satisfy unlimited human wants. 3) Microeconomics 4) Macroeconomics b) Positive vs. normative issues in economics. c) Logical fallacies. 1) Post hoc ergo propter hoc 2) Fallacy of composition -- d) Commodity -- a good (tangible) or service (intangible). 1) Economic commodities -- produced by human effort using scarce resources. 2) Free goods -- so abundant in nature that no one will pay for more per time period. e) Stocks and flows. 1) Flow -- a quantity measured per period of time. 2) Stock -- a quantity measured at an instant of time. 3) Examples -- water tank; investment, depreciation and stock of physical capital 2. Scarcity, Choice, and Opportunity Cost: a) Scarcity -- the "fundamental economic problem." 1) Most things we want have to be produced using energy from sun, material from earth's crust, and human effort. These resources are scarce in that there is not an unlimited amount available; only a finite amount can be extracted/time period. 2) The problem is that what we have is limited, but what we want is not! Thus, we must choose what to have now, what to have later, and what to forego altogether. b) Rational Choice -- the "fundamental economic activity." 1) Because of scarcity, we choose from a list of alternatives, trying to pick the best one. 2) A choice is rational if, given information available at the time, the alternative chosen is expected to yield the maximum benefit. SCARCITY CHOICE COST
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Ec 1 INTRODUCTION p. 2 c) Opportunity cost – the “third inevitable.” 1) The opportunity cost of a choice or decision is the benefit associated with the next best alternative. This is what we give up to get the benefit of our best choice. 2) Examples -- alarm, belt, TANSTAAFL.
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Ec 1 INTRODUCTION p. 3 B. Resources, Markets and the Circular Flow 1. Classification of Resources (Inputs, Factors of Production) and Payments: a) Land -- Source is nature (earth and sun). Includes space on earth's surface and natural resources (renewable and exhaustible) from the sun, ocean, and earth's crust. b) Labor -- Source is effort by current working population. Includes all kinds of workers (skilled, semi-skilled, unskilled) and hired managers. Entrepreneurial skill is a special kind of labor resource specializing in organizing and planning production, taking risks associated with innovation and business. The source of entrepreneurial skill is largely cultural. c) Capital. 1) Physical capital -- plant, machinery, equipment, and buildings used to produce other commodities. Source is past output of capital goods industries. Has long life span, wearing out (depreciating) slowly over time.
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Econ 1 - Top-1 with added problems - Econ 1 ELEMENTS OF...

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