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Econ 102: Micro1. Economics= People2. People always make decisions3. Resources are scarce  People want more4. People face trade-offs  opportunity cost5. People like incentives6. Markets= Best way to organize economic activity.7. Markets are not always optimal - Market Failures- - Externalities- -Market Power8. Government can improve market outcomes- Regulations- Providing public goods- Economic policiesEconomic policies Macroeconomics- Monetary Policy- Fiscal PolceyIdea #1 Y = Y = AEProduction= Income = ExpenditureProduction is the process that transforms scarce resources into useful goods and services. Inputs OutputsIdea #10 Investment is the only way of producing new capitalLaborCapialLandEntrepreneurshipLaborCapialLandEntrepreneurshipProductionProductionGoods and ServicesGoods and ServicesInvestment is the process of using resources to produce new CapitalEach investment decision carries an Opportunity cost.The opportunity cost of the investment in new Capital is the forgone Consumption.Trade-off: Capital /\  Consumption \/Idea #12 In the Short Run, the most important macroeconomic objective is Unemployment.Unemployment is the group of people, in the Labor Force, that do not have a jobdespite their efforts to find one.Rate of economic Growth= % ∆ YIdea #14: Trade can make everyone better off1. income gap }2. social/ economic immobility } minimum wage3. SR vs. LR- Tradeoffs between SR and LR4. Coordination failuresA crisis is a way to learn and innovate.CHAPTER 3 Supply and DemandPpt ch 3Doc ch 3Case, Fair, Oster- Ch 3 bookChapter 3: Supply and DemandPrice builds the demand curveIncome shifts the demand curveQuantity Demanded- (shifters)-Price-Income-# of buyers-Price of complements-Price of substitutes-Preferences-buyers expectationPrice increases= Quantity demanded goes down | |VDemand curve Changes in QD- movement along the demand curve due to a change in price.Demand- A Change in a non-price determinant (shifter) cause a change in demand, the entire demand curve shifts.Shift to right= increase in demand/supplyShift to left= Decrease in demand/supplyNew cars= normal goodUsed cars= inferior goodInferior good- people can’t afford high quality goods so they settle with a good that is of lower quality.Income ^^  Demand for normal ^^ Income vv  normal vvIncome ^^  Demand for inferior vv Income vv  inferior ^^Prices of substitutes= price of Pepsi goes down so demand for Coke goes down.Prices of complements= price of gas goes up so demand for SUVs goes down.SupplyThe supply model helps us understand sellers’ behaviorQuantity supplied (QS)- One point on the supply curve- Factors: Prices of inputs  cost of production- Technology- Number of suppliers- Expectations- Number of firmsLaw of supply= P ^^  QS ^^ IGNORE FACTORS^^Changes in Supply vs. Change in QS- When prices of inputs go up the cost of production will go up- Profits will go down. Supply will shift to the left- When price of inputs go down the cost of production will go down and profits will increase. The supply will shift to the right.- A fall of input prices lowers the cost of production shifting the supply curve to the right.- A change in price only causes movement along the supply curveReview table: Summary tables in lecture notes-Variables that affect demand-Factors that affect How much Firms Sell- When there is a shift in the demand curve there is also a movement along the supply


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