Econ 201 Notes
Economics 201 notes
Chapter 1 : First Principles
• Economics is science of decision making • individual choice is the basis of economics • methodology = cost-benefit analysis • If it does not involve choice, it isn 't economics. • Resources (something used to produce something else) include capital like tools and equipment, land like natural resources and labor • Resources are scarce • Opportunity cost are all costs that you must give up to get it. • trade-off is the comparison between the costs and benefits of doing something • decision of this type is called marginal decision • study of them called marginal analysis • An economy is efficient if all opportunities to make some people better off without making other people worse off are taken • There is often a trade-off between equity (fairness) and efficiency • gain from trade are the advantages of specialization • economies normally move toward equilibrium • Three basic econ. questions - What to produce? How to produce? For Whom? • Three economic system ➢ all of it answer those 3 basic econ. questions ➢ types - traditional, command/planned, market ➢ most of the country are mixed economies (more than one type)
Chapter 2 : Economic Models Trade-offs and Trade
• An important assumption in economic models is the other things equal assumption (ceteris paribus), which allows analysis of the effect of a change in one factor by holding all other relevant factors unchanged. • one important economic model is the production possibility frontier (PPF) • it illustrates opportunity cost, efficiency and economic growth • two basic source of economic growth: increases in factor of production and improved technology. • another important model is comparative advantage which someone can produce some good or service with a lower opportunity cost than everyone else • absolute advantage is an ability to produce a particular good or service better than
Chapter 1 : First Principles
• Economics is science of decision making • individual choice is the basis of economics • methodology = cost-benefit analysis • If it does not involve choice, it isn 't economics. • Resources (something used to produce something else) include capital like tools and equipment, land like natural resources and labor • Resources are scarce • Opportunity cost are all costs that you must give up to get it. • trade-off is the comparison between the costs and benefits of doing something • decision of this type is called marginal decision • study of them called marginal analysis • An economy is efficient if all opportunities to make some people better off without making other people worse off are taken • There is often a trade-off between equity (fairness) and efficiency • gain from trade are the advantages of specialization • economies normally move toward equilibrium • Three basic econ. questions - What to produce? How to produce? For Whom? • Three economic system ➢ all of it answer those 3 basic econ. questions ➢ types - traditional, command/planned, market ➢ most of the country are mixed economies (more than one type)
Chapter 2 : Economic Models Trade-offs and Trade
• An important assumption in economic models is the other things equal assumption (ceteris paribus), which allows analysis of the effect of a change in one factor by holding all other relevant factors unchanged. • one important economic model is the production possibility frontier (PPF) • it illustrates opportunity cost, efficiency and economic growth • two basic source of economic growth: increases in factor of production and improved technology. • another important model is comparative advantage which someone can produce some good or service with a lower opportunity cost than everyone else • absolute advantage is an ability to produce a particular good or service better than