Class notes
ECON 101 Chapter 1 -3 Lecture Notes
- Course
- Econ 101
- Institution
- Rochester Institute Of Technology
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MicroeconomicsLecture
Chapter 1
Chapter contents
The Economic Perspective
Theories, Principles, and Models
Microeconomics and Macroeconomics
Individual’s Economizing Problem
Society’s Economizing Problem
Production Possibilities Model
Unemployment, Growth, and the Future
Economics
Economics is a social science concerned with making optimal choices under
conditions of scarcity.
Economics wants exceed society’s productive capacity.
If wants didn’t exceed our productive capacity, everyone could have everything
that they ever wanted and this class wouldn’t exist. Since we can’t get everything
that we want, we have to make choices. The choices that we make are the best
options available given the circumstances. Every choice that is made involves an
economic decision. Your having chosen to be in this class right now impacts the
economy. If you were not here, you could be working and helping to produce
economic activity.
The Economic Perspective
A viewpoint that envisions individuals and institutions making rational decisions
by comparing the marginal benefits and marginal costs.
It considers:
o Scarcity and choice.
o Opportunity cost.
, o Purposeful behavior to increase utility.
o Marginal analysis.
The economic perspective is the way economists view the world. This includes
considering scarcity of resources, the opportunity costs of economic decisions, and how
consumers and businesses exhibit purposeful behavior in order to increase their utility.
Often economists use marginal analysis, which involves weighing the marginal benefits
and the marginal costs of some activity, in their work.
Theories, Principles, and Models
The scientific method is the procedure for the systematic pursuit of knowledge
involving the observation of facts and the formulation of testing hypotheses to
obtain theories, principles, and laws.
It consists of several elements:
o Observe.
o Formulate a hypothesis.
o Test the hypothesis.
o Accept, reject, or modify the hypothesis.
o Continue to test the hypothesis, if necessary.
Every time we make a choice, we are weighing the marginal benefit and cost. We will
choose to do something if the marginal benefit is greater than the marginal cost because
that is rational and will help to maximize utility.
When people say, “That’s not worth it,” then they are saying the marginal cost is greater
than the marginal benefit.
Economic Principles
Generalizations
Other-things-equal assumption: The assumption that factors other than those
being considered did not change. (Also called the “ceteris paribus assumption.”)
Graphical expression
, Economic principles are generalizations about economic behavior that are true for the
average person. The other-things-equal assumption is the ceteris paribus assumption
which means that all variables other than those under consideration are held constant or is
assumed to not change for a particular analysis. In economics, graphs are often used to
illustrate the relationship between variables.
Microeconomics and Macroeconomics
Microeconomics: The study of the individual consumer, firm, or market.
Macroeconomics: The study of the entire economy or a major aggregate of the
economy.
In microeconomics an individual consumer, household, or industry is examined.
Examining the price of a particular product or demand or supply of a particular product’s
market is studied in microeconomics.
In macroeconomics the entire economy is examined. Macroeconomics also looks at the
basic groups in the economy such as all households, all businesses, all of the government,
or the foreign sector. All goods and services produced in the economy, or the
unemployment rate for the entire labor force, or the inflation rate are all macroeconomics
topics.
Positive and Normative Economics
Positive economics: Economic statements that are factual.
Normative economics: Economic statements that involve value judgments.
Positive economics can be supported or disproved with data. There isn’t any subjectivity.
Normative economics is what “ought to be.” This is subjective since people have
different opinions about what is desirable.
The Economizing Problem
The economizing problem: Limited income and unlimited wants.
The budget line
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