Econ 120 - Principles of Micro-Economics
ECON *120: Principles of Microeconomics
Spring 2010 I. FOUNDATIONS OF ECONOMICS A. Scarcity, Production Possibilities, Efficiency and Exchange Section I.A Learning Objectives: • Define or explain a number of basic economic terms and concepts. • Explain, illustrate, and apply marginal analysis. • Explain, illustrate, and apply the production possibilities model. • Explain, illustrate, and apply the law of comparative advantage. 1. “Life is Economics” Q: Is this statement true or false? Why? 2. Economic Goals and Priorities of Society, or, “What does society want out of its economy?” • • • • • Economic growth/rising living standards Low unemployment/high employment Low inflation/stable prices Economic equity Economic efficiency
Remark: On the individual decision-making level, the incentives that motivate economic activity and choices are utility maximization for consumers, profit maximization for producers/firms, and social welfare maximization for government units. 3. Economics Defined a) Economic Scarcity DEF: Economic scarcity exists when human needs and wants exceed an economy's ability to satisfy them given available resources and current technology. DEF: The four basic economic resources are labor, capital (a capital good is a produced good that is used as an input in the production of other goods and is not available for current consumption), land (energy, natural resources, raw materials and other “gifts of nature”) and entrepreneurial ability (the ability to recognize and exploit economic opportunities, develop and produce new goods/services and organize economic resources). Technology refers to the ability (based upon a body of knowledge or set of skills) to transform resources into goods and services.
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DEF: An economic good (bad) is something that increases (decreases) an individual’s “utility”, the economic term for well-being, happiness, satisfaction or welfare. Examples: Economic goods: kringle, DVDs and shoes. Economic bads: garbage and
Spring 2010 I. FOUNDATIONS OF ECONOMICS A. Scarcity, Production Possibilities, Efficiency and Exchange Section I.A Learning Objectives: • Define or explain a number of basic economic terms and concepts. • Explain, illustrate, and apply marginal analysis. • Explain, illustrate, and apply the production possibilities model. • Explain, illustrate, and apply the law of comparative advantage. 1. “Life is Economics” Q: Is this statement true or false? Why? 2. Economic Goals and Priorities of Society, or, “What does society want out of its economy?” • • • • • Economic growth/rising living standards Low unemployment/high employment Low inflation/stable prices Economic equity Economic efficiency
Remark: On the individual decision-making level, the incentives that motivate economic activity and choices are utility maximization for consumers, profit maximization for producers/firms, and social welfare maximization for government units. 3. Economics Defined a) Economic Scarcity DEF: Economic scarcity exists when human needs and wants exceed an economy's ability to satisfy them given available resources and current technology. DEF: The four basic economic resources are labor, capital (a capital good is a produced good that is used as an input in the production of other goods and is not available for current consumption), land (energy, natural resources, raw materials and other “gifts of nature”) and entrepreneurial ability (the ability to recognize and exploit economic opportunities, develop and produce new goods/services and organize economic resources). Technology refers to the ability (based upon a body of knowledge or set of skills) to transform resources into goods and services.
1
DEF: An economic good (bad) is something that increases (decreases) an individual’s “utility”, the economic term for well-being, happiness, satisfaction or welfare. Examples: Economic goods: kringle, DVDs and shoes. Economic bads: garbage and