ECON 2000 1st EditionExam # 1 Study Guide Lectures: 1 - 11Lecture 1 (January 15th)- Know and understand the definition of economics. What is the difference between productive and allocative efficiency? Economics- the study of how any society best allocates its scarce economic resources among many competing uses.  Macro-which study of the aggregate (total) effects on the national economy and global economy based on the choices of individuals, businesses, and governments.  Micro- study of choices that individuals and businesses make and the way these choices interact and are influenced by government Efficiency Productive efficiency Full utilization of economic resources To test for it: if a state is using it to the fullest potential, it cannot get any more goods or services without sacrificing another Allocate efficiency Implies optimality, based on societies wants and needs If you aren’t providing what society wants/needs, why does it matter that you are providing it? - What are the four categories of economic resources? Factors of Production Scarcity- wants exceed the ability of resources to satisfy Land Includes all natural resources Labor Includes human capital Entrepreneurship A skill set, big ideas/creativity, the human resource that organizes labor, land, and capital Capital Does NOT refer to money It is all aspects of production (Machines, tools, instruments, buildings and other items that have been produced in the past and are now used to produce goods and services) - What are the 3 fundamental economic questions? 1. What to produce? Decided by consumers, although the government can control what options the consumers and firms can produce 2. How to produce?  The firms decide how products are produced 3. For whom to produce?  Products are only produced for individuals with money, although the government can still control who gets the products (Tobacco) - Why do we use models in the study of economics? To give a description of the economy or a part of the economy that includes only those features assumed necessary to explain the observed facts. Economics uses mathematical and graph-based models. Ex. Demand and supply model Lecture 2 (January 20th) Know the 5 steps of the scientific method. - Identify an issue - Make assumptions (ceteris perilus- holding all else constant) - Develop a model - Make a prediction - Test the model What is the difference between positive and normative analysis? Positive analysis Analysis of what is Normative analysis Opinion, analysis of what it should be What is an opportunity cost? Opportunity cost- Forgone benefits of the next best alternative -If you did not come to class, what would be your next best alternative? Trade off- an exchange- giving up one thing to get something else. Lecture 3 (January 22nd) What does the production possibilities curve represent? What does it mean for a production combination to be inside the curve, on the curve, outside the curve? How does the curve shift? Why does it have the shape that is has? - PPF (production possibilities frontier)- the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology  If production combination is inside the curve, they are not utilizing all their resources making it an inefficient production  If production combination is on the curve, they are utilizing all their resources making it an efficient production  If production combination is outside the curve, it is unattainableo Scarcity causes boundary o Opportunity cost/trade off : PPF down sloping o Specialization of economic resources : PPF is concave Lecture 4 (January 27th) Classifying: Pure Capitalism INDIVIDUALS own the economic resources INDIVIDUALS choose what to produce FIRMS answer how to produce INDIVUDALS with money choose for whom to produce for Uses market mechanism- Any transaction between buyers and sellers is referred to as marketPure Command Socialism- PUBLIC (government) owns the economic resources- GOVT deices what, how, and for whom to produce for- Commands and directives by the GOVERNMENT tell how it should be carried outCharacteristicsPure Capitalism- Private property and freedom of choice- Self-interest- Markets & pricesPrices signal markets to take out inefficiencies- Competition- Limited Governmental InterventionPure Command Socialism- Public Ownership- Centralized decision-making- Economic planning- Allocation by commandStrengths of Pure CapitalismWeaknesses of Pure CapitalismStrengths of Pure Command SocialismWeaknesses of Pure Command SocialismEconomic Efficiency: Producing the products that consumers want and in the least costly wayInflation Equal distribution of wealth and Goods. No oneis left behind while others exceed wealth standardsLittle to no incentive to create quality goods or create new servicesEconomic Freedom: People are free to choose based on self interestEveryone is not equal: LARGE WEALTH GAPOnly Products needed are produced, saving resourcesNo freedom of choice and little varietyPolitical freedom: Separations of Government with EconomicsMonopolies can begin to block market (not in a traditional Ideal Pure Capitalism)Provides a minimum standard of livingConsumer demands are not met, only their basic needs areCompetition leads to Quality productsMoney can buy political power and freedomPromotion Social interest over self interestNo specialization and division of laborPursuit of Self Interest over Social InterestEconomic planning: government has a long term visionLack of efficiencyPromotes going bigger andbetter which may inflict with scarcity and lead to environmental harmEquality of opportunity(needs, health care, housing)Subsidies on goods and services quickly lead to shortages. Corporations may act more in self-interest, not caring about consumers. - Exploitation of labor- Unsafe productsLower unemployment Corrupt central authority has direct connections to all goods and servicesEconomic planning leads to surpluses and shortagesdue to lack of efficiencyLecture 6(February 9th)  Define demand, quantity demanded, supply, and quantity supplied. Recognize the difference between a change in demand (supply) and a change in quantity demanded (quantity supplied).Demand- ranges of prices (entire graph)Quantity Demanded- what consumers are willing to buy at a specific price (single row, single