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UW-Madison ECON 101 - Chapter 1 notes

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Econ 101: Chapter 1 notesA. Purpose of a college educationa. Vocational- training you for a particular job, "the good life"b. Develop a moral self, creating a good life. What do you need to do to make your life meaningful?c. Knowledge imparity- working on critical thinkingREAL NOTESA. Microeconomics- behavior of individual actors on the economic sense, households or consumers, businesses or firms, govts., how the market worksMacroeconomics- looks at aggregates, gross domestic product, total employment and un, interest rates, growth, inflationB. Mankiw's 10 general Principles of Economics- Mankiw is a prof. at Harvard1. People face trade- offs- you do this, you can't do that. Buy this, can't buy that.2. The cost of something is what you give up to get it- came to class, can't sleep more3. Rational people think at the margin- benefits vs. disadvantagesa. People aren't always rational, behavior economics go to a guy named Dan Ariely wrote"Predictably Irrational"b. "Nudge" by Thaler4. People respond to incentives- doesn't post notes online to give you an incentive to come to class5. Trade can make everyone better off- 6. Markets are usually a good way to organize economic activity 7. Governments can sometimes improve market outcomes- externalities, public goods, natural monopoliesMore Macro oriented8.A country's standard of living depends on its ability to produce goods and services9. Prices rise when the government prints too much money- assumes the economy is at full employment10. Society faces a short-run trade- off between inflation and unemploymentC. Scientific method1. Observation2. Assumptions to simplify the problema. Theoretical model- economic theory1. building an abstract representation of reality2. Model should be as simple as possible to accomplish its purpose3. Testable hypothesis- fields, do studies4. Empirical testing- gather data and do analysis of data- called econometricsa. used to predict behaviorb. ultimate purpose of modes is to predict behavior5. Ex. The Big Bang is a book by Simon Singh a. Camping1. Mem. Union at 4 pm. Friday2. Drive NE for 4.5 hours and you're there- see you at the campfire at 9 pm.- not enough detailsb. Camping1. Stack of paper 1- 1000 with way too much detailc. Camping1. More directions, less detail= betterD. Positive vs. Normative1. Positive- objective, what is, verifiable, descriptive.2. Normative- subjective, what ought to be, what should be, value-ladened, prescriptiveE. Math Review1. Coordinate graph2. Direct or positive relationship- if x gets bigger, y gets bigger. smaller and smaller. 3. Inverse or negative relationship- x gets bigger, y gets smaller. opposites.4. Slope- rise over run5. Slope of a straight line- slope is constant6. Slope of a curved line- slope= tangent line, varies.7. y- intercept form= y=mx+ba. x intercept form- x= 1/m - b/m1. 1/m= reciprocal of slope8. Qualitative graphs- direct or inverse relationship9. Quantitative graphs- numeric values on the line, specific numbers10. %, fractions, multiplication, division, decimals.F. Data1. 2 Broad categories of Dataa. Cross- sectional data- collected on some variable at a single point in time1. Gender2. Age/ birth date3. Eye Color4. Hometownb. Time series data- data collected on some variable at different points in time1. Weight2. GPA3. Mood4. Income over time5. Major2. Data issuesa. Quality of the data- is it good data because of sampling error1. Height and school sampling- doesn't pool b. Time series data- using an unrepresentative beginning or end point1. Don't pick a weird starting or end pointc. Population distortion- comparison b/w 2 countries should typically be done as per capita measure1. US GDP= $ vs. China's GDP= $2. SHOULD BE- US GDP/ US pop. vs China's GDP/ China's popd. Time series issue- inflation distortione. Slope distortion- y= 10-x1. Slope looks different depending on the proportions of the graphs. Can definitely sway opinion because of how the graphs look.G. Scarcity and Choice1. Economics is the study of choice under conditions of scarcity 2. Opportunity Cost- the production or consumption forgone when we make decisions to produce or consume something else. a. Gave up sleeping, going to the gym by coming to classb. Example of going to college3. Production Possibility frontier- the path of points showing the max amount of 2 goods that can be produced with a given level of resources, technology, and time period.a. constants- resources, technology, time periodb. Properties1. Downward sloping- PPF has a negative slope, more of one good is only possible with less of the other good= trade- offa. Opportunity cost of going from point A to point B= y1- y2 units of good y2.Bowed outward- due to specialization of resources- TUESDAY SEPTEMBER 16th lectureA. Law of increasing opportunity cost- as the production of good x increase the opportunity cost of producing more x increasesBACK TO G.b. Properties1.downward sloping2.Bowed outward3. slope of PPF represents the opportunity cost H. Comparative vs Absolute advantage1.Absolute advantage- the ability to produce a good or service using fewer resources than other producers use. The ability to produce more of a good or service than another country or individual can from the same set of resources2. Comparative advantage- the ability to produce a good or service at a lower opportunity cost than other producersa. Neurosurgeon example with the dishes.b. EX: 2 individuals, Joe and Sue, are producing apples and bananas. 1. Joe can produce 100 bananas and 0 apples, 50 apples and 0 bananas2. Sue can produce 40 bananas and 0 apples, 60 apples and 0


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