Test 1 Study Guide ECO 2023 Dr McCaleb Table of Contents FORMULAS TO KNOW 2 GRAPHS TO KNOW 3 CHAPTER 1 NOTES 4 ECONOMIC METHODOLOGY 10 CHAPTER 3 NOTES 13 SCARCITY AND MARGINAL ANALYSIS LECTURE 17 PRODUCTION POSSIBILITIES AND COMPARATIVE ADVANTAGE LECTURE 20 CHAPTER 4 NOTES 23 DEMAND AND SUPPLY LECTURE 28 1 Formulas To Know Slope of a Line o M Change in Y over change in X o M Y X o M Y2 Y1 X2 X1 Net Benefit NB o NB Total Benefit Total Cost o NB TB TC The optimal amount of any activity o Is when the Marginal Benefit is equal to the Marginal Cost o When MB MC Marginal Benefit MB o MB Change in Total Benefit Change in Quantity o MB TB Q o MB TB2 TB1 Q2 Q1 Marginal Cost MC o MC Change in Total Cost Change in Quantity o MC TC Q o MC TC2 TC1 Q2 Q1 When to increase the amount of an activity Production Possibilities Frontier When to decrease the amount of an activity Production Possibilities Frontier o If Marginal Benefit Marginal Cost o If MB MC o If Marginal Cost Marginal Benefit o If MC MB Labor Force LF o Employed Unemployed o E U Market Equilibrium o When the quantity demanded equals the quantity supplied o Equilibrium QD QS 2 Graphs To Know Productions Possibilities Curve Demand and Supply Curve Know how to find the Opportunity Cost Ratio 3 Chapter 1 Notes Bade Robin and Michael Parkin Foundations of Microeconomics 6th ed Boston Pearson Addison Wesley 2013 Print The condition that arises because wants exceed the ability of resources to satisfy them 2 Our ability to satisfy our wants and needs is limited by our resources time money land labor capital entrepreneurship etc Due to these limits everyone the lower middle and upper class is left with unsatisfied wants Scarcity is what causes decisions or trade offs We must choice between the available alternatives The social science that studies the choices that individuals businesses governments and the entire societies make as they cope with scarcity the incentives that influence those choices and the arrangements that coordinate them 2 The study of the choices that individuals and businesses make and the way these choices interact and are influences by governments 2 An example of an individuals choice is whether or not to buy an iPhone versus an Android The study of the aggregate or total effects on the national economy and the global economy of the choices that individuals businesses and governments make 3 An example of a macroeconomic choice is whether or not to raise taxes or how much money to borrow from other countries and what to spend that money on The objects goods and the actions services that people value and produce to satisfy human wants 3 An example of a good is a shoe or any other physical material that can be used or sold There are two types of goods intermediate goods goods that are used to make a final product and final goods the final product Citation Scarcity Economics Microeconomics Macroeconomics Goods and Services What How For Whom This determines the quantities or amount of something that is produced This determines how to produce something For instance by hand or by machine This determines who gets to utilize the goods and services that are produced Price usually allocates goods and services to individuals Those who have a higher income can purchase more than those with a lower income 4 When Is the Pursuit of Self Interest in the Social Interest Everyday every individual in the entire world makes economic decisions that result in what how and for whom goods and services are produced But the question is if the goods and services produced and the quantities in which they are produced the right ones Do the scarce resources get used in the best possible way Do the goods and services that we produce go to the people who benefit most from them Self Interest The choices that are best for the individual who makes them 4 You make decisions that are in your best self interest or choices that you think are best for you at that time When you act on your economic decisions you come into contact with many other producers and consumers These people have all made their own decisions of what to produce and how to produce it or what to buy and how to buy it Making decisions that are in your best interest self interest can also benefit hurt society as a whole social interest Some examples include globalization the information age climate change and the social security time bomb The choices that are best for the society as a whole 4 This has two dimensions efficiency and equity Social Interest Globalization The expansion of international trade and the production of components and services by firms in other countries 5 Globalization is bringing rapid income growth but is at the same time leaving some people behind Example when Nike produces more shoes people in Malaysia have more work to do but manufacturing jobs in the United States are being lost due to this form of outsourcing The Information Age A relatively new revolution that started 25 years ago with the invention of the microprocessor or computer chip launched the Information Age This lead to faster and cheaper computing and has widely spread to many industries all around the world It has automated task that once required human decision and action Example Bill Gates and Gordon Moore were in pursuit of the big pay offs but through the development of their products many people were better off aka their self interest led to social interest However the digital divide was created in which those with low incomes could not use the technology even though they might have needed to It is believed that the current global warming conditions have partially been caused by human economic activity self interested choices and if left unchecked could lead to huge future economic costs Climate Change A Social Security Time Bomb 5 Deficits and debts that are created by the government every single day are getting larger and larger but they cannot persist indefinitely eventually they must be paid off The younger and future generations will be responsible for paying of those very debts not the older generations Economic Ideas A choice is a tradeoff People make rational choices by comparing benefits and costs Benefit is what you gain from something Cost is what you must give up to get something Most choices are how much choices made at the margin Choices respond to incentives A Choice Is a Tradeoffs An exchange giving up one thing to get something else 8 Because we face scarcity we must make
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