ECN 100 Chp 1 - Carole Miller PDF

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Carole Miller...

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Chapt er1 Economi cs • Defini t i on:t hest udyoft heal l ocat i onofscar cer esour cesusedi nt hepr oduct i onofgoods andser vi cest hatsat i sf yunl i mi t edwant sordesi r es •Pr obl em ofscar ci t y ,choi ce,oppor t uni t ycos t •3Economi cQuest i onst hatst em f r om scar ci t y : •1a.Whatt opr oduce ?Maket hechoi cebasedonconsumer sneedordesi r es •1b.Whatamountt opr oduce ?Cos tt opr oduci ngt hepr oduct s •ov er pr oduct i on( ex cesssuppl y)pr oducesl ossofpr ofi tandnor et ur ni nt hef or m ofr ev enue •t ool i t t l epr oduct i onpr oducesl ostpr ofit •2.Howt opr oducei t ?( i fr esour ceswer eunl i mi t ed,choi ceswoul dnotbenecessar y ) •Resour ces : •nat ur alr esour ces( coal ,wat er ,t i mber ,gas ,l and) •l abor( ment al abi l i t i esandphy s i cal l abor ) •capi t ol ( phy si cal capi t al whatt hecompanyowns ) •ent r epr eneur shi p( t hi nki ngout si det hebox ) •LaborI nt ensi v ePr oduct i onPr oces s:usesmor ehumanabi l i t i esr at hert han machi nes •Capi t ol I nt ensi v ePr oduct i onPr oc ess:usesmor emachi nes •Chooset hel eastcost l ywayt opr oduce( mi ni mum wage,c ostofpr oduct i on,ski l l ofwor k er sal l i nfluencet hecos tofpr oduct i on) •3.Forwhom t opr oducei t ?/ Howt odi st r i but ewhaty oupr oduce ? •I nacapi t al i s teconomy,goodsar edi s t r i but edbasedoni ncome;gui dedbywhat consumer swant ,pr oduc i ngi nt hel eastcos t l yf ashi ont odi s t r i but et ot hosewi t h hi ghi ncomes •I nasoci al i steconomy ,di s t r i but i oni sbasedonneedr at hert hanwant •Oppor t uni t yCost :measur edasy ourf or goneal t er nat i v es;whaty ouhav et ogi v e upwheny oumak eachoi ce;coul dputamoneyv al ueont i megi v enup;how y ouar eal l ocat i ngy ourr esour cest opr oducegoodsandser vi ces •Expl i ci tCost s :pai dex penses( paywor k er swage;payt or unf act or y ;cost ofi nsur ance;costofmar k et i ng;cost sofbr i ngi ngy ourpr oductt ot he mar k et ) •I mpl i ci tCost s:unpai dex penses( v al ueoft heowner ' st i me,oppor t uni t y cos t s) Pr oduct i onPossi bi l i t yCur v e( s eedi agr am i nnot ebook) •Defini t i on:whatar ey oucapabl eofpr oduci ng?measur est hemax i mum amountoft wogoods t hatcanbepr oducedwi t hf ul l empl oymentofourr es our ces •Goodsneedt ohav esomet ypeofconnect i on( CDsvsDVDs ,t abl esv schai r s) •Gr aphi ng •Label axi s •Label cur v e •Or i gi nal v snewcur v e •I ft her ei saneedf orbot hCDsandDVDs ,pr oducesomewher eont hel i ne •Pr esent sScar ci t y :r esour cesar el i mi t ed,goodsandser vi cesar el i mi t ed •Pr esent sChoi ce:choi ceoft wopr oduct sbasedonconsumerdemand •Pr esent sOppor t uni t yCost :bypr oduci ngt hemaxamountofonepr oduct ,y ougi v eupt he possi bi l i t yofpr oduci ngt heot herpr oduct

•Oppor t uni t yCosti sr epr esent edmat hemat i cal l ybysl ope( r at eofchange) •Repr esent edeconomi cper spect i v e( t r ansf er r i ngsomer es our cesf r om pr oduci ng someCDsf orDVDs) •Nonl i nearpr oduct i oncur v ei smor el i k el y •3Fi gur es •1stand3r dt hesour ceofgr owt haffectonl yonepr oduct •2ndfigur ecr eat esgr owt honbot hpr oduct s;mor er esour ces;t echnol ogi cal ex pansi on Decl i neofGr owt h Canber epr esent edbyi nt er i orpoi ntorchangei nl i net ot hel ef t Whati st hedi ffer encei nt her epr esent at i onoft hepoi ntandt heshi f ti nt hecur v e ? Poi ntsay st hats t i l l hav et her es our c et ousebutar ei dl e;unempl oyment Shi f ti ncur v es ay st hatt her ear enor es our ces,t hewhol eeconomyhascol l apsed;bui l di ng hasbur ntdown Whenf ul l empl oy mentdecl i nes,boundar ymov esi nwar d TheChal l engeofEconomi cs TheGr eatRecessi onof20082009 •Ast heout postofheUSeconomycont r act ed,peopl e' sf ai t hi nt hecapi t al i s tsy st em pl unged Mar k etEc onomy •Whatar et hebasi cgoal sofaneconomi csy st em? •Howdoesamar k eteconomyaddr es st hesegoal s ? •Whatr ol eshoul dgov er nmentpl ayi nshapi ngeconomi cout comes ? TheCent r al Pr obl em ofScar ci t y •Want sex ceedourr es our ces •Mustchoosewhi chact i vi t i est opur sueandwhi cht of or go •Economi cs:t hest udyofhow bestt oal l ocat escar cer esour cesamongcompet i nguses •Thegoal ofeconomi ct heor yi st ofigur eouthowwecanuseours car cer es our cesi nt hebes t possi bl eway •Oppor t uni t yCost :t hemostdesi r edgoodsandser vi cest hatar ef or gonei nor dert o obt ai nsomet hi ngel se •Thes acr i ficeofanex t bes tal t er nat i v e •Fact or sofPr oduct i on:r esour cei nput susedt opr oducegoodsandser vi ces( l and, l abor ,capi t ol ,andent r epr eneur shi p) •Themor ef act or sofpr oduct i onwehav e,t hemor ewecanpr oducei nagi v enper i odof t i me •Scar ci t y:l ackofenoughr esour cest osat i sf yal ldesi r edusesoft hoser esour ces Thr eeBasi cEconomi cQues t i ons 1.WHATt opr oduce • Notenoughr esour cesi nt heeconomyt opr oduceal l t hegoodsandser v i cessoci et ydesi r es

•Becausewant sex ceedr esour ces,wehav et odeci deWHATgoodsandser vi ceswewant most ,sacr i fici ngl essdesi r edpr oduct s •Pr oduct i onPossi bi l i t i es •Knowhowmuchofeachgoodwecoul dpr oduce( dependsonhowmanyr esour ceswe hav eav ai l abl e) •Countupt hef act or sofpr oduct i on:Land,Labor ,Capi t al ,Ent r epr eneur shi p •Pr oduct i onPossi bi l i t i esCur ve:descr i best hevar i ouscombi nat i onoffinalgoods orser vi cest hatcoul dbepr oducedi nagi vent i meper i odwi t havai l abl er esour ces andt echnol ogy;menuofout putchoi ces •Themor eadv ancedourt ec hnol ogi calandmanager i al abi l i t i es ,t hemor eout putwewi l l be abl et opr oducewi t hav ai l abl ef act or sofpr oduct i on •TheBestPossi bl eMi x •Ones peci ficmi xofout puti sopt i mal f oracount r y ,ami xt hatr epr esent st hebestpossi bl e al l ocat i onofr esour cesacr osscompet i nguses •Economi cGr owt h •Wecoul duseal lourr es our cest opr oduc econsumergoodsandser vi ces( howev er ,we t her ewoul dn' tbeanyf act or sofpr oduct i onav ai l abl et obui l dmachi ner y ,f act or i es,or t el ecommuni cat i onsnet wor k s) •I nvest ment :expendi t ur esonnew pl antandequi pmenti nagi vent i meper i od,pl us changesi nbusi nessi nvent or i es •Economyt ok eepgr owi ng,wemus tal l ocat esomeofourscar cer esour cest o i nv est mentr at hert hancur r entconsumpt i on •Economi cGr owt h:ani ncr easei nout put ;anexpansi onofpr oduct i onpossi bi l i t i es •Repr esent edbyanout war dshi f toft hecur v e;shi f t soccurwhenwer equi r emor e r esour cesorbet t ert ec hnol ogy 2.HOW t opr oduce • Acommongoal :findanopt i mal met hodofpr oduci nggoodsandser vi ces •Bes tpos si bl eanswerwi l lent ai l bot heffici encyi ntheuseoff act or sofpr oduct i onand adequat esaf eguar dsf ort heenvi r onmentandot hersoci al concer ns 3.FORWHOM t opr oduce •Foc usesonhowaneconomy' sout puti sdi st r i but edacr ossmember sofsoci et y •Theopt i mal di s t r i but i onofi nc omemus tsat i sf yoursenseoff ai r nessaswel l asourdesi r ef or mor eout put TheMec hani s msofChoi ce •Ev er ychoi cei nv ol v esconfli ct sandt r adeoffs •TheMar k etMechani sm •I namar k et dr i v eneconomyt hepr ocessofsel ect i ngami xofout puti sasf ami l i aras gr ocer yshoppi ng

•I fenoughconsumer sf eel t hes amewayy oudoandar eabl eandwi l l i ngt opayt hepr i ce ofi cecr eami cec r eam pr oducer swi l lc hur noutmor ei cecr eam •Cent r ali deai st her eshuffli ngofr esour cesandout put si st hemar k etmec hani sm •Mar ketMechani sm:t heuseofmar ketpr i cesandsal est osi gnaldesi r ed out put sf orr esour ceal l ocat i ons •Mar k etsal esandpr i cessendasi gnal t opr oducer saboutwhatmi xofout putcons umer s want( i fy ouwantsomet hi ngandcanaffor di t ,y oubuyi t ) •Leadst oi ncr easedsal eofpr oduct ,r i sei npr i ce,i ncr easepr oduct i on) •Tot ot hi s,companywi l lac qui r emor er esour cesandchanget hemi xofout put •Lai ssezFai r e:l eavi ngt hemar ketal onet omakebasi ceconomi cdeci si ons •Cent r alPl anni ng •Cent r alpl anner sdeci dehowmanycar st opr oduceandhowmuchbr ead •As si gnwor k er sandot herr esour cest ot hos ei ndust r i est oi mpl ementt hei rdeci si ons •I ndi vi dual scannotownf act or sofeducat i onorev enempl oyot herwor k er sf orwages •Al l di r ect edbyt hec ent r al gov er nment •Mi x edEconomi es •Mi xedEconomy:useacombi nat i onofgover nmentdi r ect i vesandmar ket mechani smst odet er mi neeconomi cout comes Undesi r abl eChoi ces •Mar k etFai l ur e •Themar k etmechani sm mi ghtf ai l t opr oducet hegoodsandser vi cessoci et ydesi r es ( exampl e:Nat i onal def ense) •Mostpeopl ewantt of eelt hatt hebor der sar esaf e,howev erf ewpeopl ecanaffor dt o buyanar myormai nt ai nal egals y st em.Mi l i t ar ywoul dbenefitt heent i r ecommuni t y , butf ewpeopl ewoul dbewi l l i ngt opayf ornat i onal sec ur i t yandwoul dr at herbea f r eel oader •Themar k etmi ghtpr oducet oomuchofagoodorser v i ce •Ex ampl e:i ft her ewer enogov er nmentr egul at i ons ,any onewhohadenoughmoney coul dpur chaseanddr i v eacar( 13y earol dscoul ddr i v et hei rcar sat100MPH any wher e) •TheWr ongMi xofOut put •Mar ketFai l ur e:ani mper f ect i oni nt hemar ketmechani sm t hatpr event sopt i mal out comes •Mi ghtal sof ai lt omak ef ul l useoft heeconomy' spr oduct i onpossi bi l i t i es •I fsomewor ker scannotfindj obs ,t hemi xofout putmayendupi nsi det hepr oduct i on possi bi l i t i escur v e •Goal i st omov ebackont ot hepr oduct i onpossi bi l i t i escur v e( f ul l empl oy ment ) •Ext er nal i t i es:cost sofamar ketact i vi t ybor nebyat hi r dpar t y ,t hedi ffer ence bet weent hesoci alandpr i vat ecost sofamar ketact i vi t y

Gov er nmentFai l ur e •Gover nmentFai l ur e:gover nmenti nt er vent i ont hatf ai l st oi mpr oveeconomi cout comes •I nt er v ent i onmi ghtnotwor s ent hemi xofout put ,butal sor educet het ot al amountofout put WhatEconomi csi sAl l About •Wer el yonacombi nat i onofmar k etsi gnal sandgov er nmenti nt er v ent i onst of or gebet t er ans wer st oWHAT,HOW,andFORWHOM quest i ons •Howdopeopl edeci dewhatgoodst obuy ?Howdopr oducer sdec i dewhatpr i cest ochar ge ? Whatf or cesdet er mi nehowmanyj obseek er swi l l beempl oy ed?Whoi shel pedandwhoi s hur tbyi nflat i on? •Goal ofeconomi ct heor yi st opr edi cthowchangesi ngov er nmentpol i c yormar k eti nst i t ut i ons wi l l affecteconomi cout put s Mac r ov sMi cr o •Macr oeconomi cs:t hest udyofaggr egat eeconomi cbehavi or ,oft heeconomyasa whol e •Mi cr oeconomi cs:t hest udyofi ndi vi dualbehavi ori nt heeconomy,oft hecomponent s oft hel ar gereconomy Theor yvsReal i t y •Theor i es( ormodel s)ofeconomi cbehav i orandt henuset hoset heor i est oev al uat eand desi gneconomi cpol i c y •Cet er i sPar i bus:t heassumpt i ont hatnot hi ngel sechanges Economi cQues t i ons 1.What 2.How Det er mi nedex cl usi v el ybyfir ms 3.Forwhom Dependsuponi ncome( i nacapi t al i steconomy)i nasoci al i st( t hegov er nment ) Mar k etFai l ur e •Fai l st opr ovi def ort hegoodorser v i ce •Publ i cGoods:hav et wocr i t er i a( ex .s t r eetl i ght s ,pol i cef or ce,fir epr ot ec t i on,publ i c s chool s,beaches) •NonRi v al r yandConEconomi cQuest i ons 1.What 2.How Det er mi nedex cl usi v el ybyfir ms 3.Forwhom Dependsuponi ncome( i nacapi t al i steconomy)i nasoci al i st( t hegov er nment )

Mar k etFai l ur e •Fai l st opr ovi def ort hegoodorser v i ce •Publ i cGoods :hav et woc r i t er i a( ex .s t r eetl i ght s ,pol i cef or ce,fi r epr ot ect i on,publ i c s chool s,beaches) •NonRi v al r yandConsumpt i on:t her ei snol essl i ghti fwear eal l enj oy i ng •NonEx cl udabi l i t yofbenefit s : •Pr obl em off r eer i der s( someonewhodoesn' twantt opay ) •Compel l edt opr ovi def orpubl i cgoods •Pr i v at eGoods :f ood,cl ot hi ng •Ex c l usi veconsumpt i on •Noj oi ntbenefit s •Ex t er nal i t i es:ani mpactont hei nnocentt hi r dpar t y( ex ampl e:pol l ut i on;t hefisher man i si mpac t edwhent hef act or ypol l ut est hewat erandt hefish) •Peopl efi ndi tcheapt opol l ut eorhi det hei rwas t ei fnoonei sst oppi ngt hem •Becauseoft hi s ,wehav er egul at i onst hatmoni t orhowmuchpol l ut antcanbe emi t t ed •Fi r msar efi ned,orf or cedt odi schar get hei rwas t ei nasaf emanner •Negat i v eExt er nal i t y •Posi t i v eEx t er nal i t y :( ex .educat i on)pr oduceshi gherpay i ngj obs,hi gheri ncomet ax r at es ,buyi nggoodsandser vi ces ,adv ancement si nt echnol ogyands ci ence,l ower amountofcr i me •I nequi t y :i ndi vi dual st hathav edi ffer entsuccess( causedf r om educat i on,heal t h, mot i v at i on,et c. ) •Soci al Wel f ar ePr ogr amst hatar ef undedbyt axf ort hosewhoc annotgett hei rown i ncome Gov er nmentFai l ur e •Gov er nmentf ai l st oi mpr ov et hesi t uat i on •Regul at i onsar et oohar sh •Notenoughr egul at i ons Mi cr oeconomi csvsMac r oeconomi cs : •Macr oeconomi cs:t heeconomyasawhol e;l ookatwhateconomi espr oducei nt ot al ( GDP:gr os sdomest i cpr oduct ) ;howt heempl oy mentr at ei schangi ng,c hangi ng i nflat i onr at e •Mi cr oeconomi cs:speci ficmar k et s ;howconsumer si nt er actwi t hfir ms ;s peci fic gr oups/ s peci ficpr oduc t s;degr eeofcompet i t i oni nfluenci ngt hosemar k et ssumpt i on: t her ei snol essl i ghti fwear eal l enj oyi ng •NonEx cl udabi l i t yofbenefit s :

•Pr obl em off r eer i der s( someonewhodoesn' twantt opay ) •Compel l edt opr ovi def orpubl i cgoods •Pr i v at eGoods :f ood,cl ot hi ng •Ex c l usi veconsumpt i on •Noj oi ntbenefit s •Ext er nal i t i es:ani mpac tont hei nnocentt hi r dpar t y( ex ampl e:pol l ut i on;t hefisher mani s i mpac t edwhent hef act or ypol l ut est hewat erandt hefish) •Peopl efi ndi tcheapt opol l ut eorhi det hei rwas t ei fnoonei sst oppi ngt hem •Becauseoft hi s ,wehav er egul at i onst hatmoni t orhowmuchpol l ut antcanbeemi t t ed •Fi r msar efi ned,orf or cedt odi schar get hei rwas t ei nasaf emanner •Negat i v eEx t er nal i t y •Posi t i v eExt er nal i t y :( ex .educat i on)pr oduceshi gherpay i ngj obs ,hi gheri ncomet axr at es , buy i nggoodsands er vi ces ,adv ancement si nt echnol ogyandsci ence,l oweramountof c r i me •I nequi t y:i ndi vi dual st hathav edi ffer entsuccess( causedf r om educat i on,heal t h,mot i v at i on, et c. ) •Soci al Wel f ar ePr ogr amst hatar ef undedbyt axf ort hosewhoc annotgett hei rown i ncome Gov er nmentFai l ur e •Gov er nmentf ai l st oi mpr ov et hesi t uat i on •Regul at i onsar et oohar sh •Notenoughr egul at i ons Mi cr oeconomi csvsMac r oeconomi cs : •Macr oeconomi cs:t heeconomyasawhol e;l ookatwhateconomi espr oducei nt ot al ( GDP: gr ossdomest i cpr oduct ) ;howt heempl oy mentr at ei schangi ng,changi ngi nflat i onr at e •Mi cr oeconomi cs:speci ficmar k et s ;howconsumer si nt er actwi t hfir ms ;s peci ficgr oups/ speci fic pr oduct s;degr eeofcompet i t i oni nfluenci ngt hosemar k et s...