arnold 8e ch 01 economoics

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    In This

    Lecture..

    Goods and BadsResources

    ScarcityOpportunity Costs

    Costs and Benefits

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    In This

    Lecture..

    Decisions Made at the MarginEfficiencyUnintended EffectsExchange

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    In This

    Lecture..

    Microeconomics &

    MacroeconomicsPositive & Normative Economics

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    Building A Definition of Economics

    ~ Resources ~

    Labor The physical and mental

    talents people contribute to the

    production process

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    Building A Definition of Economics

    ~ Resources ~

    Capital

    Produced goods

    that can be used as inputs for further production, such as factories, machinery, tools, computers, and buildings

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    Building A Definition of Economics

    ~ Resources ~Entrepreneurship The particular

    talent that some people have for:organizing the resources of land,

    labor, and capital to produce goodsseeking new business opportunitiesdeveloping new ways of doing

    things

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    Scarcity

    The condition in which our wants are greater than the

    limited resources available to satisfy

    those wants

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    Opportunity Costs

    The most highly valued opportunity

    or alternative forfeited when a choice is made

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    Study or ???

    Cost

    Benefit

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    Economics, the Science of Scarcity

    The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.

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    Rationing Device

    A means for deciding who gets

    what of available resources and

    goods

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    Self Test Questions

    1. Scarcity is the condition of finite

    resources. True or false? Explain your answer.

    2. How does

    competition

    arise

    out

    of

    scarcity?

    3. How does choice arise out of scarcity?

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    Marginal Benefits

    Additional benefits. The benefitsconnected to consuming an additionalunit of a good or undertaking one more unit of an activity.

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    Marginal Costs

    Additional costs. The costs connectedto consuming an additional unit of agood or undertaking one more unit ofan activity.

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    Decisions at the Margin

    Decision making characterized byweighing the additional (marginal) benefits of a change against theadditional (marginal) costs of achange with respect to currentconditions

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    Efficiency

    Marginal Benefits = Marginal Costs

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    Unintended Effects

    A positive or negative outcome that was

    not anticipated

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    Exchange/Trade

    The process of giving up one thing foranother.

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    Self Test Questions

    1. Give an example to illustrate how a change in opportunity cost can affect behavior.

    2. There are both costs and benefits of studying. If you continue to study (say, for a test) as long as the marginal benefits of studying are greater

    than the marginal costs and stop studying when the two are equal, will your action be consistent with having maximized the net benefits of studying? Explain your answer.

    3. You stay up an added hour to study for a test. The intended effect is to raise your test grade. What might be an unintended effect of staying

    up an added hour to study for the test?

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    Positive vs. Normative Economics

    Positive The study of what is in economic matters.

    Cause Effect

    Normative The study of what should be in economic matters Judgment and Opinion

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    Microeconomics

    Microeconomics deals with human behavior and choices as they relate to

    relatively small unitsan individual, a business firm, an industry, a single

    market.

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    Microeconomic Questions

    ~

    How does

    a

    market

    work? What level of output does a firm produce?

    What price

    does

    a firm

    charge

    for

    the

    good it produces?

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    Microeconomic Questions(continued)

    How does a consumer determine how much of a good he or she will buy?

    Can government policy affect business

    behavior? Can government policy affect consumer

    behavior?

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    Macroeconomics

    Macroeconomics deals with human behavior and choices as they relate to highly aggregate markets (e.g., the goods and services market) or the entire economy.

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    Macroeconomic Questions

    How does the economy work?

    Why is the unemployment rate sometimes high and sometimes low?

    What causes inflation? Why do some national economies

    grow faster than other national economies?

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    Macroeconomic Questions(continued)

    What might cause interest rates to be

    low one year and high the next? How do changes in the money

    supply affect the economy? How do changes in government

    spending and taxes affect the economy?

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