Chapter 1 Lecture Notes

ECON 1023 give-up the ghost 2011 Instructor Gibson Nene Chapter 1 Lecture Notes Limits, Alternatives and picks The frugal perspective or stinting way of thinking takes the following concepts into consideration * Scarcity and Choice * purpose-make Behavior * bare(a)ism Benefits and Costs Scarcity and Choice Economics is roughly wants and inwardness * Society has the resources to make goods and work that satisfy our to a great extent desires. * However, our frugal wants utmost exceed the productive capacity of our limited resources our resources atomic number 18 peculiar. Scarcity rendering means that friendship has limited resources and therefore cannot produce all the goods and run people want In other words economic resources argon scarce and wants are infinite. What is the meaning of scarcity from the consumers perspective? * Scarcity refers to limitations in consumption of the goods that are available beca pulmonary tuberculosis of limited income * Consumers thr ow an income constraint. Because resources are scarce when we choose to produce something we simultaneously make the choice to let go of producing something else. * When a good is produced, the resources employed can no longer be employ to make another good. We must(prenominal) decide what we will have and what we must forgo. Such sacrifices are referred to as probability costs. Opportunity cost Dfn The honour of the good, service or time forgone to obtain something else. When you choose to go to college, you forgo some potential income earnings. So Economics studies the choices made by individuals and societies to habituate scarce resources to satisfy unlimited wants. Purposeful behavior We make closings to deliver the goods desired outcomes * We are not always perfect in our choices humans behavior is assumed to reflect rational self-interest Economics assumes that individuals render to increase or maximize their utility pleasure, happiness or delight * As consumers we assume you are purposeful in deciding what goods and services to buy. * You want to grasp the best out of their choices * Business firms are purposeful in deciding what products to produce and how. * Governmental entities are purposeful in deciding what services to provide and how to finance them. * In an nutshell, society seeks to get the best out of every choice. Does rational self-interest mean that individuals are selfish?It turns out that a lot of people help society through charitable donations, expertise without expecting you to pay for the service. Marginalism Benefits and Costs What is the meaning of Marginal in economics? Marginal means extra, redundant a potpourri in. A change from the staus quo. e. g. should I study an extra hour for the trial? Should I buy an extra pair of shoes? Every decision involves marginal benefits (MB) and because of scarce resources, marginal costs (MC). Which choice would make you break up off? MB=MC, MB>MC, MB<MC. Individuals make rat ional decisions much(prenominal) that the marginal benefit exceeds (or equals) the marginal cost.Example shopping for a brisk car * You find a standard model that you like unless(prenominal) you are considering additional features (a sunroof, leather interior, heated seats and alloy wheels). As long as the marginal benefit (greater satisfaction) exceeds the marginal cost (extra expenses) of the additional features, you will add them. Economics relies on the Scientific Method * spy real-world behavior and outcomes. * Formulating possible explanations of cause and effect (hypothesis). * Testing hypothesis by comparing predicted and actual outcomes. * Accepting, rejecting, or modifying hypothesis. * Continuing the process.Hypotheses Theories Laws and principles Models Economic principles are statements round economic behavior that enable prediction of the probable effects of certain(prenominal) actions. * They serve as tools for ascertaining cause and effect (or action and out come) within the economic system * Purposeful simplifications simplify complex reality * Generalizations make statements about typical or average consumers, workers, or business firms * Ceteris paribus (Other things equal) all variables invite out those under consideration are held constant * Graphical expression many models are expressed graphicallyMicroeconomics versus macroeconomics Microeconomics studies individual decision-making units, such as a consumer, a worker, or a business firm. Macroeconomics studies the thriftiness as a whole or it aggregates. The economic worry Individuals economic problem The economic problem faced by individuals can be summarized using a reckon byplay What is a cypher line? compute you received a $120 Barnes and noble gift wittiness as a birthday present. The card expires soon, so you want to use everything on the card on books and DVDs. Your Budget here is $120 ii goods, DVDs legal injury $20 and Books Price $10First step in constructi ng a budget line. Construct a table showing the preference combinations of the two products that are available. Graphing the budget line What do we learn from the budget line? Trade-offs and Opportunity costs Implications of a straight-line budget constraint Choice Limited income forces people to choose what to buy and what to forgo to fulfill wants. What happens to the budget line when your income changes? A reduction or decrease in income Suppose the gift card has $60 on it and prices do not change. You yet want to buy the alike(p) two goods, DVDs Price $20 and Books Price $10.The budget line associated with a reduction in income. An Increase in income Suppose the gift card has $240 on it while prices of DVDs and books remain the same The budget line associated with income increase Societys economic problem * Economic resources are scarce * What are economic resources? The employment fortuity model * Assumptions action possibilities table Lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment. Assume a simple economy producing only Pizza and manufacturing equipment.Type of Production Production Alternatives A B C D E Pizza(hundred 000s)Manufacturing equipment ( thousands) 010 19 27 34 40 Production possibilities thin out The law of increasing opportunity costs A movement from dose A to headspring B Movement from point in time B to point C Movement from point C to point D Movement from point D to point E The shape of the curve PPF Example 2 Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts) Type of Production Production Alternatives A B C D E AutomobilesForklifts 030 227 421 612 80 The PPF If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Explain how the production possibilities curve reflects the law of increasing opportunity costs. If t he economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you bring to an end about its use of its available resources? What would production at a point outside the production possibilities curve indicate? What must occur to begin with the economy can attain such a level of production?Suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Now assume that a technological advance occurs in producing automobiles but not in producing forklifts. Now draw a production possibilities curve that reflects technological improvement in the production of both goods. optimal allocation of resources Marginal benefit curve The marginal cost curve The intersection of the two MB=MC MB>MC MC>MB PPFs and Unemployment, Growth, and the future tense Unemployment or underutilization of resources Economic growthPresent choices and future possibilities Investment in future goods such as capital goods, research, education, and medicine, promotes economic growth. An economy that invests more in these future goods versus one that invests in stream goods. Presentville more consumption today and less production of future goods Futureville less consumption today and more production of future goods. Futureville will have a greater production capacity in the future and greater consumption in the future when compared to the one that favors present goods. Which economy made a better choice here?