Chapter 1 Lecture Notes

ECON 1023 Fall 2011 Instructor: Gibson Nene Chapter 1 Lecture Notes: Limits, Alternatives and Choices The economic perspective or economic way of thinking takes the aftercited concepts into importance: * Deficiency and Dainty * Purposeful Deportment * Marginalism: Benefits and Costs Deficiency and Dainty Economics is environing deficiencys and media: * Companionship has the media to constitute issue and avocations that suffice our frequent desires. * However, our economic deficiencys far abound the prolific talents of our poor media – our media are uncommon. Scarcity Definition: media that companionship has poor media and for-this-reason cannot product all the issue and avocations fellow-creatures deficiency In other signification economic media are uncommon and deficiencys are unbounded. What is the significance of deficiency from the consumers’ perspective? * Deficiency refers to limitations in decrement of the issue that are advantageous accordingly of poor pay * Consumers entertain an pay avocation. Accordingly media are uncommon when we cull to product triton we unitedly constitute the dainty to forgo supple triton else. * When a cheerful is productd, the media filled can no craveer be used to constitute another cheerful. We must career what we procure entertain and what we must forgo. Such sacrifices are referred to as turn absorbs. Turn absorb Dfn: The esteem of the cheerful, avocation or interval forgone to earn triton else. When you cull to go to nursery, you forgo some virtual pay hues. So Economics studies the daintys made by beings and societies to localize uncommon media to suffice unpoor deficiencys. Purposeful deportment We constitute resolutions to terminate desired issues * We are not invariablely impeccable in our daintys Human deportment is productive to mirror reasoning self-interest Economics wears that beings investigate to development or maximize their utility: favor, wellbeing or atonement * As consumers we wear you are purposeful in deciding what issue and avocations to buy. * You deficiency to get the best out of their daintys * Vocation rooteds are purposeful in deciding what products to product and how. * Governmental entities are purposeful in deciding what avocations to afford and how to finance them. * In an nutshell, companionship investigates to get the best out of perfect dainty. Does reasoning self-interest balance that beings are greedy? It turns out that a lot of fellow-creatures succor companionship through benign donations, expertise extraneously expecting you to pay for the avocation. Marginalism: Benefits and Costs What is the significance of Final in economics? Final media extra, subjoined a transmute in. A transmute from the staus quo. e. g. should I con-over an extra hour for the exam? Should I buy an extra span of shoes? Perfect resolution involves final advantages (MB) and accordingly of uncommon media, final absorbs (MC). Which dainty would constitute you improve off? MB=MC, MB>MC, MB<MC. Beings constitute reasoning resolutions such that the final advantage abounds (or resemblings) the final absorb. Example shopping for a new car * You meet a rule copy that you relish but you are regarding subjoined features (a sunroof, leather internal, fierce seats and diminution wheels). As crave as the final advantage (important atonement) abounds the final absorb (extra expenses) of the subjoined features, you procure add them. Economics relies on the Scientific Method * Observing real-world deportment and issues. * Formulating practicable explanations of origin and movables (hypothesis). * Testing conjecture by comparing predicted and express issues. * Accepting, rejecting, or modifying conjecture. * Continuing the order. Hypotheses > Theories > Laws and principles > Models Economic principles are statements environing economic deportment that empower forebodement of the reasonable movabclose of undeniable possessions. * They accommodate as tools for ascertaining origin and movables (or possession and issue) amid the economic system: * “Purposeful simplifications” – elucidate multifarious genuineness * Generalizations – constitute statements environing natural or medium consumers, workers, or vocation rooteds * Ceteris paribus (Other things resembling) – all variables save those inferior importance are held invariable * Graphical indication – frequent copys are developed graphically Microeconomics versus macroeconomics Microeconomics studies single resolution-making units, such as a consumer, a worker, or a vocation rooted. Macroeconomics studies the dispensation as a well or it aggregates. The economic total Individual’s economic total The economic total faced by beings can be summarized using a budget course What is a budget course? Suppose you common a $120 Barnes and dignified confer-upon card as a birthday confer-upon. The card expires early, so you deficiency to use perfectthing on the card on books and DVDs. Your Budget hither is $120 Two issue, DVDs Price $20 and Books Price $10 First stalk in constructing a budget course. Construct a consideration showing the opinion combinations of the two products that are advantageous. Graphing the budget course What do we glean from the budget course? Trade-offs and Turn absorbs Implications of a straight-course budget avocation Dainty Poor pay forces fellow-creatures to cull what to buy and what to forgo to meaning deficiencys. What happens to the budget course when your pay transmutes? A closeen or closeen in pay: Suppose the confer-upon card has $60 on it and prices do not transmute. You stagnant deficiency to buy the identical two issue, DVDs Price $20 and Books Price $10. The budget course associated delay a closeen in pay. An Development in pay: Suppose the confer-upon card has $240 on it timeliness prices of DVDs and books stay the identical The budget course associated delay pay development Society’s economic total * Economic media are uncommon * What are economic media? The product possibility copy * Assumptions Product possibilities consideration Lists the opposed combinations of two products that can be productd delay a unfair set of media, gorgeous bountiful avocation. Wear a unadorned dispensation supple simply Pizza and manufacturing equipment. Type of Production| Product Alternatives| | | | | | | | A| B| C| D| E| | | | | | | Pizza(hundred 000s)Manufacturing equipment ( thousands)| 010| 19| 27| 34| 40| | | | | | | Product possibilities incurvation The law of increasing turn absorbs A motion from top A to top B: Motion from top B to top C Motion from top C to top D Motion from top D to top E The outline of the incurvation PPF Example 2 Below is a product possibilities consideration for consumer issue (automobiles) and consummate issue (forklifts): Type of Production| Product Alternatives| | | | | | | | A| B| C| D| E| | | | | | | AutomobilesForklifts| 030| 227| 421| 612| 80| | | | | | | | | | | | | The PPF If the dispensation is at top C, what is the absorb of one past automobile? Of one past forklift? Explain how the product possibilities incurvation mirrors the law of increasing turn absorbs. If the dispensation characterized by this product possibilities consideration and incurvation were supple 3 automobiles and 20 forklifts, what could you deduce environing its use of its advantageous media? What would product at a top without the product possibilities incurvation show? What must take-place precedently the dispensation can acquire such a plane of product? Suppose increase take-places in the technology of supple forklifts but not in the technology of supple automobiles. Now wear that a technological progression take-places in supple automobiles but not in supple forklifts. Now delineate a product possibilities incurvation that mirrors technological increase in the product of twain issue. Optimal allocation of media Final advantage incurvation The final absorb incurvation The intersection of the two MB=MC MB>MC MC>MB PPFs and Unemployment, Growth, and the forthcoming Unavocation or inferiorutilization of media Economic development Present daintys and forthcoming possibilities Investment in forthcoming issue such as consummate issue, scrutiny, counsel, and antidote, promotes economic development. An dispensation that invests past in these forthcoming issue versus one that invests in exoteric issue. Presentville: past decrement today and close product of forthcoming issue Futureville: close decrement today and past product of forthcoming issue. Futureville procure entertain a important product talents in the forthcoming and important decrement in the forthcoming when compared to the one that favors confer-upon issue. Which dispensation made a improve dainty hither?