FSU ECO 2023 - 8 Guideposts of Economic Thinking

Unformatted text preview:

8 Guideposts of Economic Thinking- 1. There are ALWAYS tradeoffs. What you give up is your opportunity cost of next best alternative.- Why do taxi drivers quit early on rainy days?- Why don’t celebrity marriages last?- NO SUCH THING AS FREE LUNCH.- 2. Individuals choose purposefully- Referred to as economizing behavior- try to get the most benefits for the least cost or effort AKA rational behavior.- 3. Incentives matter: as the incentive goes up, you will be more likely to do something or try to and vice versa. - 4. Think on the margin, not in total or on average- Marginal is incremental - Rule to live by: continue to engage in an activity as long as the marginal benefit is greater than the marginal cost. - How long should you study for a midterm- 5. More information leads to better decision-making, but more information iscostly to get.- 6. Many choices create a secondary effect- The primary effect is often immediate and visible- Secondary effects usually comes later and is not visible- Ex. Punch in the arm- 7. Value is subjective- Beauty is in the eyes of the beholder- Value is determined by the purchaser- 8. Economic thinking is scientific thinking- Economists use data and information generated by people to explain and predict actions- Economists “do it with models”- Ex. A campus map1. There are always trade offs2. Individuals choose purposefully3. Incentives matter4. Think on the marginDon’t make one of these errors:1) Violation of ceteris paribus- It is Latin for “other things constant”- We want to isolate variables so we typically allow only one to change at a tie.- Example race to campus2) Good intentions do not necessarily result in good outcomes- Milton Friedman: “there is nothing that does so much harm as good intentions”3) Association is NOT causation4) Fallacy of composition- What’s good for the individual is good for the group- Making this assumption is the fallacy- Why do women endure the discomfort of high heels Chapter 2:1. When people trade, one person gains and the other person losesa. Referred to as a zero sum game2. When people trade, both parties gaina. Wealth is created by trade 2 kinds of property rights1. Common rights: everybody owns it2. Private rights: only one person owns it4 incentives created by property rights:1. Give proper care2. Conserve for the future3. Use resources in ways other people value4. Mitigate (cause) possible harm to othersThe PPC can shift:1. Shift out: growth, produce more2. Shift in: shrink, produce lesTrade, Output, advantage:1. Law of comparative advantage-Make the good for which you have a low opportunity cost and trade for the good, which you have a high opportunity cost.-Transition: make something you’re good at and trade for something your not good at.Chapter 3Key points:1. Excess supply and excess demand are not unique points2. Equilibrium is a unique pointThis is called supply and demand analysis- You don’t have to use graphs but its helpful- Use this 3 step procedureo Identify the changeo Determine if supply or demand is affected and howo Draw and read graph (or reason through the change)- Adam smith: an inquiry into the nature and causes of the wealth of nations- Personal self interest directed by market prices is a powerful force promoting economic progress- Many outcomes are the result of human action but not human designChapter 7: macro 4 learning goals:1. Define gross domestic product and describe the key phrases of the definition2. List the ways to measure gross domestic product and identify the source of higher income levels3. Differentiate between real and nominal gdp4. Examine the limitations of gdp as a measure of output- Gdp: a measure of output- Definition of gdp: the market value of final goods and services produced within a country during a specific time period- Gdp as a measure of both income and output- First way to measure gdp expenditure approach: o Gdp= sum of purchaseso Gdp= y= c+i+g+xo C=consumption; purchases for goods and services by consumerso I= investment o G= government purchaseso X= net exports (exports-imports)Some gdp facts: 2nd quarter, 2010Gdp= 14575 billionC= 102080 (71%)I=1839 (13%)G=2992 (21%)X=-536 (-4%)Second way to measure gdp: income approach- Add up income generated in the production of goods and services- Kay point: higher income levels are caused by more output- This is more output comes first then higher income comes second Use CPI: represents simple goods bought by households. Market basketAnd GDP deflator: accounts for almost all goods bought (broader measure then cpi)-Inflation the percentage change in an index- Applications in economics p.158Fueleconomy.govChapter 8:Economic fluctuations, unemployment, and inflation- Proposal to reduce unemployment- Recall those two goods you predicted wouldn’t be produced in 2020. I propose we make it illegal to lay off those workers. Keep them employed making these goods. - Some unemployment is unavoidable and arguably desirable- Natural rate of unemployment “normal” frictional and structural unemployment- The natural rate occurs when the economy is operating at a sustainable rate- Full employment is when the natural rate of unemployment existsActual and potential gdp- Potential output: the economies maximum sustainable output; occurs when the natural rate of unemployment exists- Potential output is perhaps best thought of as the 3% growth rate discussed earlier- Actual output can be greater than or less than potentialThe effects of inflation-Inflation: a persistent increase in the general level of prices- In February 2008 a loaf of bread was 200,000 Zimbabwe dollars- In august, 2008, that same loaf of bread was 1.6 trillion dollars- That’s 11.2 million percentWhy is inflation “bad”?1. It reduces investment: long term projects are more risky2. It distorts information delivered by prices: relative prices are skewed because some prices adjust more quickly than others3. It results in less productive use of resources: people will spend more time trying to combat the effects of inflation rather than engaging in productive activityMacro chapter 9: an introduction to basic macroeconomic markets- Circular flow diagram:o 4 key markets coordinate the circular flow of income- Aggregate demand for goods and services- What is aggregate demand?o A summation of all goods and services desiredo AD is the relationship between two variables: amount of goods desired and the price levelo Aggregate supply of goods and


View Full Document

FSU ECO 2023 - 8 Guideposts of Economic Thinking

Documents in this Course
EXAM 2

EXAM 2

35 pages

Exam 3

Exam 3

18 pages

EXAM 2

EXAM 2

35 pages

Exam

Exam

9 pages

Chapter 1

Chapter 1

10 pages

Exam 1

Exam 1

14 pages

Exam 3

Exam 3

9 pages

Chapter 1

Chapter 1

24 pages

Exam 1

Exam 1

8 pages

Exam 1

Exam 1

19 pages

MIDTERM 1

MIDTERM 1

11 pages

EXAM 2

EXAM 2

17 pages

Quiz 1

Quiz 1

30 pages

Scarcity

Scarcity

12 pages

Exam 3

Exam 3

5 pages

Scarcity

Scarcity

48 pages

MIDTERM 1

MIDTERM 1

11 pages

MIDTERM 1

MIDTERM 1

10 pages

MIDTERM 2

MIDTERM 2

10 pages

Exam 2

Exam 2

9 pages

EXAM 1

EXAM 1

41 pages

Chapter 1

Chapter 1

20 pages

Test 1

Test 1

32 pages

Test 3

Test 3

3 pages

Exam 1

Exam 1

4 pages

Exam 3

Exam 3

12 pages

Exam 2

Exam 2

7 pages

Test 3

Test 3

21 pages

Chapter 1

Chapter 1

23 pages

Chapter 1

Chapter 1

35 pages

Exam 2

Exam 2

6 pages

Chapter 1

Chapter 1

15 pages

Exam 1

Exam 1

8 pages

EXAM 1

EXAM 1

12 pages

Chapter 1

Chapter 1

74 pages

Chapter 1

Chapter 1

18 pages

Exam 2

Exam 2

18 pages

Chapter 1

Chapter 1

29 pages

Exam 2

Exam 2

44 pages

Exam 2

Exam 2

10 pages

Exam 2

Exam 2

12 pages

Exam 2

Exam 2

12 pages

Chapter 1

Chapter 1

68 pages

Chapter 1

Chapter 1

23 pages

Chapter 1

Chapter 1

21 pages

Chapter 1

Chapter 1

23 pages

Chapter 1

Chapter 1

23 pages

Exam 2

Exam 2

13 pages

Exam 2

Exam 2

13 pages

Test 1

Test 1

31 pages

Chapter 1

Chapter 1

35 pages

Chapter 1

Chapter 1

27 pages

Chapter 1

Chapter 1

27 pages

Chapter 9

Chapter 9

16 pages

Exam 3

Exam 3

6 pages

Test 1

Test 1

8 pages

Chapter 1

Chapter 1

70 pages

Chapter 1

Chapter 1

70 pages

Chapter 1

Chapter 1

23 pages

Chapter 1

Chapter 1

14 pages

Exam 3

Exam 3

15 pages

Notes

Notes

1 pages

Chapter 1

Chapter 1

21 pages

Load more
Download 8 Guideposts of Economic Thinking
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view 8 Guideposts of Economic Thinking and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view 8 Guideposts of Economic Thinking 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?