ECON 1050 Lecture 1: ECON NOTES
Black = Chapter 1
Yellow = chapter 2
Green = chapter 3
Blue = Chapter 4
Pink = Chapter 5
Purple = Chapter 6
Magenta = Chapter 8
Chapter 7 = salmon
Grey = Chapter 9
ECON* 1050 DE Notes
Chapter 1: What is Economics?
Microeconomics: study of how choices made by individual firms and households solve
economic problem
Scarcity: not everything is available to everyone, people don’t have infinite money and must
make choices among alternatives
Normative Statement: statement regarding future ideas or plans “what ought to be”
Positive Statement: a statement regarding “what is” currently – current facts
•In Canada, 93% have high school diplomas, 23% have a college or university degree
Factors of Production
Land – any natural goods and services. Income called rent
Labor – effort people put in to produce goods and services. Income called wages.
Capital- machinery and assets needed for production. Income called interest
Entrepreneurship – combines other factors to earn a profit. Income called profit
Chapter 2 : The Economic Problem
Economic Problem: How to produce and allocate goods and services
Production Possibility Frontier: helps understand which combo of goods and services in
economy can be produced, are efficient and are not efficient
Shows combination of food and shelter that
can be produced given available inputs and
present technology.
Points above curve cannot be produced
Points on or below curve can be produced !
-Below curve (X) = Inefficient, food can be
increased without reducing shelter (point A)
or shelter can be increased without reducing
food (point C) !
-At point C or point A, one cannot be
increased without reducing the other. Have
to give up a little bit of one thing to increase
other thing !
find more resources at oneclass.com
find more resources at oneclass.com
Production Possibility in terms of Economic Growth:
If we had more resources to produce shelter, PPF would shift out towards shelter. Increase
along shelter axes, no increase occurs along food axes
If we had more resources to produce food, PPF would shift towards food. Increase along food
axes but not towards shelter
Gains from Trade
Example: Bart and Lisa asked to do chores by parents – cooking and yard work. Under names
we put number of hours to complete each task. Lisa is faster, so she has an absolute
advantage in each task.
MC: marginal cost !
Qa: Represents amount of shelter at point
A
•Not much shelter therefore low
marginal cost
Qc: Amount of shelter at point C
•Higher shelter therefore higher cost
•Cost in reference to amount of lost
food
If we have a lot of food, we’re likely
willing to give up quite a bit of food to get
more shelter (Unamed point 1). !
If we have a lot of shelter but little food,
we’ll want to give up shelter to get more
food, but not food to get more shelter
(Unamed point 2). !
MB: Marginal benefit of shelter curve in
units of food !
Qb: at this level of shelter marginal cost of
additional unit of shelter in terms of
forgone food are exactly equal to marginal
benefits of additional unit of shelter in
terms of food
•At this combination marginal
benefit and marginal cost are equal
Point B = most efficient!
find more resources at oneclass.com
find more resources at oneclass.com
OC: opportunity cost.
•Bart’s opportunity cost of cooking a meal = hours to make meal/hours of yard work =
3/5
oIn terms of forgone yard work
oIf instead he devoted meal time to doing yard work he would only get 3/5 of
yard work done
oFor OC of yard work take reciprocal : 5/3
•Lisa’s opportunity cost of completing meal = 2/1 = 2
oIf she spent meal time doing yard work she would complete yard work twice
oFor OC yard work: ½
•Bart has comparative advantage in cooking meal because his OC is lower in terms of
forgone yard work (3/5 < 2)
•Lisa has comparative advantage in yard work because her OC is lower in terms of
forgone meal time (1/2 < 5/3)
Say they have to complete task 5 times a week each
•Barts total time will be 40 hours
•Lisas total time will be 15 hours
If they only complete tasks in which they have the comparative advantage (Lisa does yard,
Bart cooks) for 10 chores – they trade chores to do what they have the advantage in thus
trade is mutually beneficial
•30 hours
•10 hours
•More efficient production!
Marginal benefit: the benefit received from consuming one more unit of it and is measured
by willingness to pay for it
Marginal cost: opportunity cost of producing an additional unit of a good
Allocative efficiency: the point on the PPF that we prefer over all other points – personal
decision about which is most efficient.
Production efficiency: all points given on PPF achieve production efficiency
•PPF will shift outward for anything increasing ability to supply product (e.g. increase
human capital, technology improvement, increased labour force)
•PPF will shift inward for anything decreasing ability to supply product (e.g. a drought)
•Bowed out shape of curve indicated increasing opportunity cost
Chapter 3: Supply and Demand
Inferior Good: purchased by those with low incomes, will not buy if income increases
•If price increases the quantity demanded will decrease but the “demand” itself will
remain the same
Complement goods: purchased together, like ketchup and hotdogs
•If production of A decreases, price of A will fall and price of B will rise
If a producer can choose to produce either A or B
•Rise in price of A will decrease the supply of B
Substitutes: customers pick one over the other
•Decrease in price of A increases supply of B and decreases price of B
Market: any arrangement that allows buyers and sellers to do business with each other
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Microeconomics: study of how choices made by individual firms and households solve economic problem. Scarcity: not everything is available to everyone, people don"t have infinite money and must make choices among alternatives. Normative statement: statement regarding future ideas or plans what ought to be . Positive statement: a statement regarding what is currently current facts. In canada, 93% have high school diplomas, 23% have a college or university degree. Labor effort people put in to produce goods and services. Entrepreneurship combines other factors to earn a profit. Economic problem: how to produce and allocate goods and services. Production possibility frontier: helps understand which combo of goods and services in economy can be produced, are efficient and are not efficient. Shows combination of food and shelter that can be produced given available inputs and present technology. Points on or below curve can be produced.
