ECON103 - Topic 1 - Emma Hutchinson Introductory Concepts and Models PDF

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Emma Hutchinson
Introductory Concepts and Models...

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TOPIC 1: INTRODUCTORY CONCEPTS AND MODELS Intro to Microeconomics! - imperfect information = we don't have all the data to make perfect decisions! - economics is greatly affected by social media and society! - Macroeconomics = studies how the aggregate economy behaves (inflation, prices, growth, unemployment, GDP etc.)! 1.1: What is economics and why is it important?! - Economics = Study of how humans made decisions in the face of scarcity! - Scarcity = The want for goods and exceeds the amount available!

• ultimate scare resource is time! • pay for things we need (food, shelter etc) — work to get paid — spend time working ! - we never learned how to make the things we need, therefore we buy them! - Division of Labour = the way a good or service is produced is divided into different sections

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which is completed by different people (Hat making @ econ workshop, kitchen with chefs, sous-chefs, waiters, hostesses, cooks, etc)! • means a company can make a greatly quantity of output! Specializations! • allows workers to focus on what they know, doing whats easy for them! - can be affected by geography — easier to have a hotel in Vancouver than Kamloops! • allows workers to move quicker and gain more expertise, figuring out how to do their job faster! takes advantage of economies of scale = as production increases, price goes down! • • requires trade! Trade = you give money for an item you want! • instead of learning all the skills involved in making the item!

1.2: Opportunity Costs & Sunk Costs! - Decision making must be rational — considering opportunity costs! - We are good at considering scarcity as resources and money, but what about time?! - Willingness to Pay = The max amount of resource a consumer is willing to lose to achieve a certain benefit! • Explicit Costs = direct payment of money! • Implicit Costs = benefit of the next best option (what you could make at work, what else you could be doing thats beneficial to you)! - Trade-offs = sacrifice of a resource to achieve a certain benefit! - Making Decisions:! • Find willingness to pay (best option, and next best option)! • Subtract explicit costs form both! • Choose which is the least costly! - Sunk Costs = cost that is not recoverable — no impact on decision making! • gym memberships, usually in business and government “we’ve invested too much to back out now”!

Opportunity Cost = Explicit Cost + Implicit Cost 1.3: Marginal Analysis! - Marginal Analysis = examination of additional benefits of an activity compared to the additional cost! • breaking down a decision into a series of binary (yes or no) decisions! - Marginal Benefit = additional satisfaction gained from an additional unit of the activity! • aka: willingness to pay! - Marginal Cost = additional costs from an additional unit of the activity! - Marginal Net Benefit = difference between the marginal benefits and marginal costs! • add up all the benefits and subtract all the costs! Marginal Net Benefit = Marginal Benefits - Marginal Costs...