Econ 102- Dr. Boyle Ch 1- Scarcity-o What and how much will be produced?o How will items be produced?o For whom will items be produced?- Scarcity- people want more than is freely available from natureo Leads to competitiono Time, money, donuts, all scarce – air is noto Necessitates rationing Prices, waiting, political, randomo If everyone was rich, scarcity would still exist - Micro econ – focuses on individuals, firms, industries, or families- Macro econ – focuses on countries and the world - Microo Babies, advertising, gas prices- Macroo Unemployment, inflation rate, gdp- Poverty in the US is under $23,050 for family of 4o Subjective – poor person in usa would be rich in rural Rwanda- 12 ways to think about economicso 1st- tradeoffs There is always an opportunity cost- Opportunity cost- the highest valued forgone alternative – give something up cause you can always pick something elseo 2nd – individuals choose purposefully They try to get the most from limited resources Most bang for your bucko 3rd – incentives matter Positive and negative incentives- Punish people not to do something or reward to do something Direct and indirect effects- Direct- easily to recognize- Indirect – smoking bans in bar People react predictability to chances in incentives Penny vs. a quarter on sidewalk- A quarter on the sidewalk versus one in the middle of a busy road o 4th- individuals make decisions at the Margin Marginal means additional Compare marginal cost to marginal benefit Gas station – 1 drink for $1.50 or 2 drinks for $2.00o 5th- information is Costly but helps make Better decisionso 6th- secondary effects The indirect impact of an event or policy may not be easily and immediately observable. These secondary effects are often overlooked by politicians. o 7th- value is subjective Value depends on the situation 1 extra point Is still one point no matter what but it may have more added value to someone with a 79 rather than a 74o 8th – test of a theory is its ability to predict  Want to determine what behavior will look like Bad predictions come from bad theories - Models must be based on a set of assumptions – tells ````` ````when model applicable  Models and realism- Economistic seek to predict what people will do when faced with certain incentiveso When surveyed for a poll, many people will say that tax breaks have no effect on their charitable donations o 9th- hold all else equalo 10th – good intentions do not guarantee good outcomes We care about results not thought processo 11th- association (correlation) is not causationo 12th – what is good for the individual is not always good for the group Fallacy of composition Standing at football game – stand up good for you but not good for others2 opposing answers- Centralized command and control aka central planning- price system aka market system Central planning- Decisions are made by highest power- Means of production owned by government- Difficulty to obtain info that would be captured by prices Market System- Decentralized, example nail factory- Individuals and families own the means of production- Prices serve as signals that provide infoMixed Economic Systems- Mix of CCC and Price systems- Continuum- Some countries more CCC – china north korea and others more price (s.korea)- Countries can change how much CCC how much price system over time (USA,Auto Banks)- Rationality assumptiono You don’t make yourself worse off on purposeo Economics focused on outcomes rather than thought processo 3 rationally assumptions Interested only in own satisfaction Choices always align with long term interests Can consider every choiceo Bounded Rationality People are nearly rational People use rules of thumb instead of considering all choices- Positive vs Normative Econo Positive Statements about what is  Something can be tested, proven or disproveno Normative Statements about what “should be” Matter of opinion- Spontaneous Ordero The result of human action but not human design Markets Language Money Grocery storeso Markets are a decentralized system -> they evolve rather than createdScarcity And the World of Tradeoff- chapter 2- 5 types of resourceso Land Not just “land but also”- Location- Original fertility- Topography- Climate- Watero Labor Productive contributions of humans who worko Physical capital Machines Buildings Equipmento Human Capital Accumulated training and education of workers- Learning by doing – practice- Formal education – collegeo Entrepreneurship Performed by humans- Subdivision of labor- Raises capital, organizes, manages, assembles - Economists concerned with wants- Every individual has competing wants but cannot satisfy all of them- Product possibilities curve- PPC aka prod. Poss. Frontier- Possible combination of output for 2 goods at a given time- Can change over time- Can use to see opportunity cost of productiono Concave shape- Shifting the PPC outo Increase in economy rescoure baseo Advancement in technologyo Improvement in the rules governing the economyo Giving up current leisure and working hardero Giving up current consumption and investing more - Law of increasing additional costo As we produce more and more of one unit, it makes it harder too Specializationo More specialization -> more curve- EFFICIENCYo Productive efficiency – max outputs given inputs or minimize costs given outputo Not wastingo Specialization- Law of demand iso the amont of a good that buyers are willing and able to purchase at a given price – quantity demandedo the claim that with other things being equal that quantity demanded of a good falls when the price of that good rises- law of demand- The height of the demand curve representso Willingness to payo Marginal benefit- Producer choiceo Producers convert resources into goods and services by Organizing productive inputs and resources like land labor capital natural resources and intermediate goods Transforming and combing these inputs Selling final product to consumerso Opportunity cost of production = value of inputs in their alternative useso Profit = total revenue – total costo Firms earn profit when their product is worth more than the opportunity cost of resources used to make ito Consumer’s wtp more than goods OC indicates that they value the good more than other things that could have been produced with the same