arnold 8e ch 01 economoics
TRANSCRIPT
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In This
Lecture..
Goods and BadsResources
ScarcityOpportunity Costs
Costs and Benefits
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In This
Lecture..
Decisions Made at the MarginEfficiencyUnintended EffectsExchange
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In This
Lecture..
Microeconomics &
MacroeconomicsPositive & Normative Economics
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Building A Definition of Economics
~ Resources ~
Labor The physical and mental
talents people contribute to the
production process
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Building A Definition of Economics
~ Resources ~
Capital
Produced goods
that can be used as inputs for further production, such as factories, machinery, tools, computers, and buildings
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Building A Definition of Economics
~ Resources ~Entrepreneurship The particular
talent that some people have for:organizing the resources of land,
labor, and capital to produce goodsseeking new business opportunitiesdeveloping new ways of doing
things
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Scarcity
The condition in which our wants are greater than the
limited resources available to satisfy
those wants
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Opportunity Costs
The most highly valued opportunity
or alternative forfeited when a choice is made
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Study or ???
Cost
Benefit
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Economics, the Science of Scarcity
The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.
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Rationing Device
A means for deciding who gets
what of available resources and
goods
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Self Test Questions
1. Scarcity is the condition of finite
resources. True or false? Explain your answer.
2. How does
competition
arise
out
of
scarcity?
3. How does choice arise out of scarcity?
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Marginal Benefits
Additional benefits. The benefitsconnected to consuming an additionalunit of a good or undertaking one more unit of an activity.
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Marginal Costs
Additional costs. The costs connectedto consuming an additional unit of agood or undertaking one more unit ofan activity.
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Decisions at the Margin
Decision making characterized byweighing the additional (marginal) benefits of a change against theadditional (marginal) costs of achange with respect to currentconditions
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Efficiency
Marginal Benefits = Marginal Costs
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Unintended Effects
A positive or negative outcome that was
not anticipated
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Exchange/Trade
The process of giving up one thing foranother.
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Self Test Questions
1. Give an example to illustrate how a change in opportunity cost can affect behavior.
2. There are both costs and benefits of studying. If you continue to study (say, for a test) as long as the marginal benefits of studying are greater
than the marginal costs and stop studying when the two are equal, will your action be consistent with having maximized the net benefits of studying? Explain your answer.
3. You stay up an added hour to study for a test. The intended effect is to raise your test grade. What might be an unintended effect of staying
up an added hour to study for the test?
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Positive vs. Normative Economics
Positive The study of what is in economic matters.
Cause Effect
Normative The study of what should be in economic matters Judgment and Opinion
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Microeconomics
Microeconomics deals with human behavior and choices as they relate to
relatively small unitsan individual, a business firm, an industry, a single
market.
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Microeconomic Questions
~
How does
a
market
work? What level of output does a firm produce?
What price
does
a firm
charge
for
the
good it produces?
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Microeconomic Questions(continued)
How does a consumer determine how much of a good he or she will buy?
Can government policy affect business
behavior? Can government policy affect consumer
behavior?
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Macroeconomics
Macroeconomics deals with human behavior and choices as they relate to highly aggregate markets (e.g., the goods and services market) or the entire economy.
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Macroeconomic Questions
How does the economy work?
Why is the unemployment rate sometimes high and sometimes low?
What causes inflation? Why do some national economies
grow faster than other national economies?
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Macroeconomic Questions(continued)
What might cause interest rates to be
low one year and high the next? How do changes in the money
supply affect the economy? How do changes in government
spending and taxes affect the economy?
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