ECON 201 Final: FINAL REVIEW (lecture notes & graphs to know)

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1 Dec 2016

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ECON 201 Full Course Notes

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Economy: social science that studies how we allocate limited resources to satisfy unlimited wants. Important basic economics principles: scarcity necessitates choice, economic costs are important, people are rational, incentives matter (they get people to behave a certain way, optimal decisions are made at the margin. Scarcity ( shortage): state where the resources cannot satisfy the wants. A way to deal with it would be to prioritize (i. e. make choices which means trade-o s between e ciency and equity. Efficiency : using all the resources available vs. equity: allocating resources equitably (which is a loaded issue because economically speaking it doesn"t make much sense). When you prefer e ciency over equity the result is a higher standard of living. Every choice leads to a decision, which itself leads to a trade-o which itself means opportunity cost. Opportunity cost the quantity of goods that must be sacri ced to get an increment in the rst good.

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Need help revising, and recommendation for a conclusion.

Throughout this paper is my understanding of what I have learned in class chapters 1-4, expressing my understanding and opinions. Economics is the study of how we deal with scarce resources. Microeconomics specially deals with business in the home country exclusively. This type of economics affects small businesses in the home country only. On the other hand, macroeconomics concerns our national welfare concerning trade and international business.

I believe that many things affect our economy on a microeconomics level. Things such as our understanding of our country in reflection to the world are very important. That is why we study ourselves before we study the macroeconomic principle of the world. Understanding ourselves is what microeconomics teaches us. Working from the inside out. The world is a place where there are differences in our wants and what we get. That is what makes items scarce. That is what positive economics is. Positive economics deals with what is and what we have. The other type of economics is called normative statements. This deals with what we should receive instead of what is and deserved to some extent. It's our scarce resources that determine our allocation of resources and how we use our resources and time. This is where opportunity costs come in, giving up something to do something. A successful business or country never ignores opportunity costs. We must ensure that we have a comparative advantage instead of the absolute advantage. Our resources must be used to achieve maximum output. Comparative is met when we have fewer opportunity costs to make some certain products than the other person or entity.

My initial understanding was scarcity was oil potentially running out, but we have so much of it that you can always find more with techniques such as fracking. Now it's obvious to me, one of our most scarce resources is time. You cannot avoid the 8,760 hours in a year. I understand that people have unlimited wants but limited resources. Everything has a cost and we must make a choice as we don't have unlimited farms, factories workers, etc. scarcity forces choices and this ties in with opportunity cost, for every gun made, a theft from the hungry is made. The opportunity cost not being used to feed the poor, but to make guns. And I find it easy to understand no one can have everything choices must be made on benefits. If I'm going to school, imp giving up making cash, as I'm giving up money for an education, I value education more. Scarcity is also related to the invisible hand. As it's an achievement that leads free markets and capitalism through competition for scarce resources.

My understanding of the invisible hand is a person neither intends to promote public interest and does not know how much he is promoting it. Only intending on his own gain. Without being his intention a person can be lead by the invisible hand to do good for society by pursuing one's own self-interest. Going into equity and efficiency the invisible hand does ensure both equity and efficiency. People work in their selfish ways to maximize profit while also contributing to the economy as a whole. It can also be argued that as the invisible hand wants to ensure efficiency, it cannot guarantee efficiency, because it can fail to produce an efficient allocation of resources, which in turn lead to a market failure. It can also be argued that it can't guarantee equity because not everyone gets a fair price. The way I like to remember efficiency is with a real-life example, like a reduction in the number of workers needed to produce a particular good for a particular amount. Equity refers to the ownership interest in an asset, for example, if a person owns a house with a market value of $800,000 and owes $100,000 on the mortgage leaving a $700,000 equity in the home.

It can be predicted that if the price of beef increases - ceteris paribus-the quantity of beef demanded by buys will decrease. In other words, if the price of beef increases, then the quantity of beef increases, then the quantity of beef demanded will decrease because all things have to be equal. In-class lecture thought me all other things remaining the same. Economists use ceteris paribus to determine the effect of a factor when all other factors have been held the same and helps simplify the study and get a more refined data set.

Economists deal with many issues that pertain to assuring that both a countries domestic output is efficient and that there is an effective trade balance. This means that there are a balance and limit on the amount of imports. Also, this means home production must be able to meet export demands. There are many factors that affect the production of goods and their effect on shifting the production possibilities frontier. This involves evaluating every detail including knowing the products and any close substitutes and compliments. It also involves knowing how an action or other external force will affect demand. This is called price elasticity; Substitutes are products that can replace any given product or service. An example of this would be Coke and Pepsi. The presence of substitutes affects price elasticity because if there are other options, then any change to the price or quality of the product will cause a shift of the demand curve. O course, price is a huge reason why the demand for a product decreases or increases yet it doesn't shift the curve because of the price only. This price change will cause a domino effect that will end with the shifting of the demand curve because it will cause an increase or decrease in demand of the substitute good if the price change is either lower or higher respectively. This price change serves as a catalyst that will change people's desire to spend more money on a more expensive product and that will instead choose to buy the substitute good for cheaper or buy more of the desired product. The change in the price of actual products will not shift the demand curve yet the change of the price of substitutes will because it serves to change people's purchasing behavior. On the other hand, compliments serve to boost demand when there is a decrease in price. The use of complementary goods is dependent upon another product. An example of this would be hot dogs and buns. If the price of hotdogs decreases then, conversely, the demand for hot dog buns will increase because of this change in price. In this scenario, the decrease in price will cause a positive shift in the demand curve because of people's desire and willingness to buy more buns. This is an example of a demand shifter. There are a few other demand shifters. The shifters of the demand curve are changes in expectations, disposable income, price of substitute goods and complements, tastes and preferences, and population size and composition. Changes in income affect the demand curve because if income is lower then people tend to save any extra income instead of wasting it. Disposable income is minimized and spending is lower. This also causes people to see a perceived value of things and distinguishing between what is necessary and what is a relative luxury. The lower the income, the higher the saving and avoidance to spend. An example of this would be if someone needs to buy some medication and it is relatively expensive, that doesn't mean that someone won't buy the medication just because it is expensive. It is necessary. Other factors that contribute to spending and demand are having a price ceiling and price floor. Having a price ceiling is a limit on the price of the product this is a government-imposed idea that is meant to protect consumers from unfair pricing and other conditions that may be malicious or obscure. This affects demand because if there is a price ceiling there is a limit on profit on a unit-to-unit basis. The other factor is the price floor. This price floor was created to encourage competition and affect consumers' willingness to pay because sometimes this new price may be higher than the original price. This causes a negative impact on a product that has a less than wanted perceived value. Many factors contribute to economic prosperity and certainly do help assure that information is analyzed and implemented into an economic and business plan.

limejellyfish231

Economics is nothing more than the study of scarcity and choice. It's called the Economizing Problem.

Economics is also the study of human action---why people make the choices they do.

We have finite (limited) resources and infinite (unlimited) demand for goods and services. We must, therefore, use rational decisions as to how to allocate these resources so that we can produce the goods and services that satisfy as many needs and wants as possible.

Needs are those things that make life possible---food, clothing, shelter, etc. Wants are the things that make life easier---glass in windows, carpet on the floor, a refrigerator to keep your beer cold, etc.

The resources we are trying to use wisely are not confined to money. We are talking about talent, ability, drive, ambition, etc. We can't all be brain surgeons. Nor would most of us want to be. We have different needs and wants that drive our ambitions. I have 5 grandchildren. The oldest two are twins---a boy and a girl. My granddaughter graduated from Idaho University with a bachelor's and a master's degree in accounting in 5 years. She passed the CPA exam on the first try. She now lives in Panama and works for BMW. She speaks, reads, and writes 4 languages, including English. Her brother finally graduated from the University of Arkansas in May 2016 after 8 years! Why did it happen this way?? They were raised the same way by the same parents. Why was my granddaughter drove to succeed and my grandson so listless?

Then there is subjective valuation and opportunity cost. Opportunity cost is nothing more than what you have to give up to do something else. Some of you might have to roll out of the bar or the party a little before you wanted to leave just to be able to attend my class. You might also have to give up some precious sleep. In any event, you had to give up something to attend my class. That's the opportunity cost. Remember, everything you do has a price (opportunity cost) that must be paid according to Harry Browne who wrote, How I Found Freedom in an Unfree World.) To do one thing you must give up the opportunity to do something else.

When people decide to buy a product or service they must decide if it will satisfy a need or want at a price they are willing to pay. The number one reason that people buy the products or services they do is called Personal Tastes or Preferences (Subjective valuation). Everyone has a different price they are willing to pay for the same product or service. Something is only worth what someone is willing to pay for it. That's a subjective valuation. Each of us has a different intensity of demand for the same products. Things you want I may not care for at all, and the opposite may also be true. This is why there is such a variety of goods and services offered on the market.

Subjective valuation is also fluid. As your income goes either up or down it changes your valuation of products and services. Have you ever wanted something so bad you would do almost anything to get it---an i phone or I pad?---but once you get the money you think, "do I really want this?' and you don't buy it. This is common. If it were not for a subjective valuation we would all be wearing the same style and color clothes and living in similar houses, etc. Wouldn't that be a wonderful world! I'd find the tallest building in downtown Orlando and see if I could fly! It is not the similarity in people that interests me. It's the differences. It's my desire not to be like everyone else that has driven my life. Don't strive to be someone else. Strive to find and be yourself. God save me from a terminal case of conventional wisdom!

There are 5 embedded questions.

Give me an example of subjective valuation.

salmoneel837

1. According to a WSJ article, in Britain, drug companies are paying for nurses to study patient charts to identify people with chronic illnesses. "The nurses then recommend which patients should be called in for a check-up and perhaps prescribe new treatment. The work is part of what the industry calls "disease management programs," which the companies say improve care for people with illnesses like diabetes, asthma, or heart disease." Source: Jeanne Whalen, "Drug Makers Finance Nurses for U.K. Doctors." Wall Street Journal, 30 May 2007, Page B1. Which of the following best explains the actions of the drug companies? Select one:

a. Drug companies see this program as a way of educating patients about the various drug choices available to them

b. The companies see this program as a way to market their own products

c. The companies are committed to improving patient care in Britain

d. The companies are doing their part to ease the health care crisis in Britain

2. According to the economic way of thinking, Select one:

a. The value of a good is determined by the cost of the resources used to produce that good

b. A nation's wealth can be increased by shifting the production possibilities frontier inward.

c. Innovation makes it possible to produce good without giving up the production of another good

d. Costs are incurred when scarce resources are used to produce goods.

3. All of the statements are true about markets except Select one:

a. Markets excel at wealth creation because they often provide incentives for self-interested individuals to take socially beneficial actions

b. Markets function even without an administrator to coordinate the consumption and production plans of buyers and suppliers, respectively

c. The most equitable way to distribute goods and services is through markets

d. Markets are generally an efficient way to facilitate the exchange of goods, services, and resources

4. An institutional arrangement that provides people with opportunities and procedures for exchanging goods, services, and resources is called: Select one:

a. Barter

b. A social economy

c. Traded.

d. A market

5. Concerned that California's high-occupancy vehicle (HOV) lanes were not operating at full capacity and therefore not easing congestion as much as they could. In 2006, California lawmakers authorized the state's Department of Motor Vehicles to distribute 85,000 stickers to owners of gasoline-electric hybrid cars. Which of the following are the consequences of this policy?

(i) The stickers increased the demand for hybrid vehicles that qualified for stickers. (ii) The price of hybrid vehicles increased. (iii) The HOV lanes became clogged with hybrid vehicles which further aggravated congestion. Select one:

a. (i) and (ii) only b. (i), (ii) and (iii) c. (ii) and (iii) only d. (i) only

6. Consider the following policy: To make sure that poor people receive emergency treatment, the U.S. government forces emergency rooms to offer free care to poor patients. Which of the following is a consequence of this policy? Select one:

a. Hospitals in poor neighborhoods are likely to close their emergency rooms because of the high cost of providing free treatment to poor patients

b. Hospitals will have to offer higher salaries to doctors and nurses to induce them to work in poor neighborhoods

c. More hospitals are likely to open emergency care facilities in poor neighborhoods because of increased demand

d. The wait time in emergency rooms will fall.

7. Consider the following three statements: (i) The slump in the housing market has led to an increase in unemployment in the housing construction market. (ii) The Federal Reserve decided to keep interest rates unchanged, motivated by the slump in the housing market. (iii) The California Air Resources Board passed a regulation requiring that 10% of all large automobiles sold in California from 2008 onward be zero-emissions vehicles: cars powered by electricity or alternative fuels like hydrogen. Which of the statements is a macroeconomics issue? Select one:

a. (ii) only b. (i), (ii) and (iii) c. (i) and (ii) only d. (ii) and (iii) only

8. Consider the following three statements: (i) The slump in the housing market has led to an increase in unemployment in the housing construction market. (ii) The Federal Reserve decided to keep interest rates unchanged, motivated by the slump in the housing market. (iii) The California Air Resources Board passed a regulation requiring that 10% of all large automobiles sold in California from 2008 onward be zero-emissions vehicles: cars powered by electricity or alternative fuels like hydrogen. Which of the statements is largely a microeconomics issue? Select one:

a. (i) and (iii) only b. None of the above statements is a microeconomics issue c. (iii) only d. (i) only

9. Consider the following two medical procedures for a particular chronic illness. Procedure X has a very high patient survival rate, but patients are likely to suffer significant brain damage that greatly diminishes one's quality of life. Procedure Y has a much lower survival rate, but if a patient survives she is able to lead a full and normal life. If surgeons are compensated only if their patients survive, how will this policy affect the treatment for this illness?

Select one:

a. More of procedure X will be performed although patients are likely to suffer significant brain damage

b. Surgeons have no incentive to treat this illness

c. More of procedure Y will be performed because patients will able to lead full and normal lives

d. Patients have no incentive to seek treatment for this illness

10. Daikin, Possner, and Zoe are discussing what it means to say that people respond to incentives. Here is an extract from their conversation. Daikin: It means that people are required to behave in a cooperative fashion so that the citizens of a nation can coexist peacefully. Possner: It means that people act in ways that society approves. No rational person will do business with immoral characters. Zoe: It means that people undertake certain actions if they know that doing so will result in some form of material reward that they will not otherwise receive. Whose view accords with the economic way of thinking? Select one:

a. Only the views of Daikin and Zoe exhibit the economic way of thinking.

b. Possner's view is the only one that exhibits the economic way of thinking.

c. All three of their views exhibit an economic way of thinking.

d. Zoe's view is the only one that exhibits the economic way of thinking.

whitespider552

ECON 201 Final: FINAL REVIEW (lecture notes & graphs to know)

ECON 201 Full Course Notes

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