Chapter 1 Lecture Notes

ECON 1023 F entirely 2011 Instructor Gibson Nene Chapter 1 Lecture Notes Limits, Alternatives and Choices The scotch posture or economic way of thinking takes the following concepts into consideration * scarcity and Choice * Purposeful Behavior * Marginalism Benefits and be Scarcity and Choice economics is about unavoidablenesss and means * Society has the resources to reserve goods and services that satisfy our more desires. * However, our economic wants far exceed the productive capacity of our limited resources our resources argon scarce. ScarcityDefinition means that society has limited resources and therefore washbowlnot create all the goods and services people want In other voice communication economic resources ar 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 because of limited income * Consumers view as an income control. Because r esources are scarce when we read to produce something we simultaneously make the option to forgo producing something else. * When a good is produced, the resources employed quarter no seven-day be used to make another good. We must decide what we lead have and what we must forgo. Such sacrifices are referred to as probability approachs. luck cost Dfn The value of the good, service or time forg maven to obtain something else. When you choose to go to college, you forgo some potential income earnings. So Economics studies the alternatives make by individuals and societies to utilize scarce resources to satisfy unlimited wants. Purposeful bearing We make decisions to achieve desired outcomes * We are not always staring(a) in our choices Human behavior is assumed to reflect rational expedience Economics assumes that individuals seek to increase or maximize their utility pleasure, mirth or satisfaction * As consumers we assume you are purposeful in deciding what goods and se rvices to buy. * You want to get the best out of their choices * stage 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-centeredness 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 bare, redundant a change in. A change from the staus quo. e. g. should I study an extra hour for the exam? Should I buy an extra pair of raiment? Every decision involves marginal benefits (MB) and because of scarce resources, marginal costs (MC). Which choice would make you better off? MB=MC, MBMC, MB Theories Laws and principles Models Economic principles are statements about ec onomic behavior that enable prediction of the probable make of certain actions. * They serve as tools for ascertaining cause and effect (or action and outcome) inwardly 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 except those under consideration are held constant * Graphical locution 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 miserliness as a whole or it aggregates. The economic problem Individuals economic problem The economic problem faced by individuals can be summarized using a cipher line What is a budget line? Suppose you received a $ one hundred twenty Barnes and noble natural endowment card as a birthday present. The card expi res soon, so you want to use everything on the card on books and DVDs. Your Budget here is $120 Two goods, DVDs Price $20 and Books Price $10First trample in constructing a budget line. Construct a table viewing the alternative combinations of the two products that are available. Graphing the budget line What do we make 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 see 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 still want to buy the same two goods, DVDs Price $20 and Books Price $10.The budget line associated with a reduction in income. An attach in income Suppose the gift card has $240 on it while prices of DVDs and books reside the same The budget line associated with income increase Societys economic problem * Economic resources are scarce * What are economic resources? The ware possibility model * Assumptions mathematical product possibilities table Lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment. cod a simple economy producing only Pizza and manufacturing equipment.Type of take Production Alternatives A B C D E Pizza(hundred 000s)Manufacturing equipment ( thousands) 010 19 27 34 40 Production possibilities curve The law of change magnitude opportunity costs A movement from point in time A to point B bowel movement from point 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 beneath is a deed 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 the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources? What would production at a point outside the production possibilities curve indicate? What must spend before the economy can attain such a take aim of production?Suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Now assume that a technological cite occurs in producing automobiles but not in producing forklifts. Now draw a production possibilities curve that reflects technological improvement in the production of some(prenominal) goods. Optimal allocation of resources Marginal benefit curve The marginal cost curve The intersection of the two MB=MC MBMC MCMB PPFs a nd Unemployment, Growth, and the succeeding(a) 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 current goods. Presentville more consumption at once 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?