Micro Ch 1 Scarcity limited nature Society Economics the study of how society manages its scarce resources Ten Principles 1 People face trade offs a Society faces a tradeoff efficiency vs equality b Efficiency when society gets the most from its resources c Equality distribute the prosperity uniformly 2 The cost of something is what you give up to get it a Opportunity cost Whatever you must give up to obtain it b Flower Shop i Last years salary 50 000 ii TR flower shop 100 000 iii TC flower shop 100 000 iv ACCT 30 000 v OC 50 000 lost the opportunity to make this money c Date i Tickets 20 ii Food 20 iii Total Cost 40 EXPLICIT COST iv Paid 10 hour v Movie is 2 hours long vi OC from two hour movie 20 IMPLICIT COST vii Total cost with opportunity cost 60 3 Rational People Think on the Margin a Ex flight Cleveland to SD i Cost to airline 500 000 ii Can hold 2 000 people iii 250 per ticket for airline to break even b Marginal Revenue Marginal Cost i Airline marginal revenue 100 marginal cost 0 00 c Marginal amount for that specific person thing 4 People respond to Incentives Incentive something that induces a person to act a b 70 s or 80 s required seat belts to be worn i Car Deaths increased because they felt safer ii Bike deaths increased as well c Rising of gas prices i Sales of hybrid go up ii Sales of SUV s go down d Taxing on cigarettes Teen smoking goes down 5 Trade can make everyone better off 6 Markets are usually a good way to organize economic activity a Three systems i Command social planner decides how much quantity everything should have and what prices should be ii Traditional Using history and tradition to set quantity and prices 1 Women s Salary on average are 70 of men s even if they are equally qualified experience because of tradition women s salary is lower iii Market allocates resources through decentralized decisions of many house holds and firms b Father of modern economics Adam Smith wrote Wealth of Nations written in 1776 7 Government can sometimes improve market outcomes a Create laws and enforce them i Enforce property rights ii People are less inclined to work produce invest or purchase if there is a large risk of property being stolen b Markets are not sometimes not efficient i Market failure 1 Market fails to allocate societies resources efficiently 2 Causes a Externalities when production or consumption of a good affects bystanders b Market power a single buyer or seller has influence on market price c Markets may not make it as equitable or as equal fair 8 A country standard of living depends on it s ability to produce goods and services a Productivity the amount of goods and services produced per unit of labor i Developed wealthy countries have approximately 10 times standard of living than poor ii Poor countries 100 years behind our standard of living up 8x 9 Prices increase when government prints too much money a Zimbabwe in 2008 inflation was 11 000 i 10 for a burger today in one year would cost 1 100 with ii No sense in trying to save money because value continues to go 11 000 inflation down 10 Society faces a tradeoff between inflation and unemployment a Stagflation no one is making money prices are rising
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