lOMoARcPSD|3236165

ECON 1050 Chapter 1 notes

Introductory Microeconomics SFW (University of Guelph)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)
 lOMoARcPSD|3236165

ECON 1050

Sep, 9th

Chapter 1 : What is economics

Economics: is the social science that studies the choices that individuals, businesses,
governments, and entire societies make as they cope with scarcity and the incentives that
influence and reconcile those choices.

Scarcity:Our inability to get everything we want

• It is universal

• confronts all living things

Incentive: a reward that encourages an action or a penalty that discourages one

Opportunity cost: the next best available option that you have to give up

Microeconomics and macro economics

Microeconomics: the study of the choices that individuals and businesses make, the way
these choices interact in markets, and the influencers of governments.

• why are people downloading more movies

• how would a tax on e-commerce effect eBay

Macroeconomics: the study of the performance of the national economy and the global
economy.

• Why does the Canadian unemployment rate fluctuate

• can the bank of Canada make the unemployment rate fall by keeping interest rates low

2 big questions summarize the scope of economics

How do choices end up determining what ,how, and for whom goods and services are
produced?

Do choices made in the pursuit of self interest also promote social interests?

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

What How and for whom?

Goods and services: Are the objects that people value and produce to satisfy wants
and services are tasks preformed for people.

What we produce varies across countries and changes over time

how we produce is described by the technologies and resources that we use

• The resources we use to produce goods and services are called Factors of production
which are grouped into 4 categories

• Land (natural resources) EARNS RENT

• labour (Work time & effort) EARNS WAGES
• capital (Tools, buildings, machinery, etc that businesses use to produce //money
stocks bonds ) EARNS INTEREST
• entrepreneurship (Human resource that organizes^^) EARNS PROFIT

Human capital: the knowledge and skill that people obtain from education, on-the-job
training

*Labour earns the most income*

Self interests: if you think that choice is the best one available for you

Social interests: an outcome is in the social interest if it is best for the society as a whole

The economic way of thinking

A choice is a tradeoff: due to scarcity we must make choices when we make a choice we
select from the available alternatives // Tradeoff is an exchange; giving up on one thing to get
another.

Making a rational choice: one that compares costs and benefits and achieves the greatest
benefit over cost for the person making the choice.

Benefit: the gain or pleasure it brings and is determined by the prefrences—by what a person
likes and dislikes.

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Cost: the opportunity cost of something is the highest valued alternative that must be given up
to get it.

Choosing at the margin?

Margin: deciding how much to allocate to each activity // how much studying vs. hanging with
friends you compare the benefit of a little bit more studying time with its cost.

the benefit that arises from an increase in an activity is called marginal benefit. vice versa the
opportunity cost of an increase in an activity is called the marginal cost.

Economics as a social science and policy tool

Positive statments: a positive statement is about what is. It says what is currently believed
about the way the world operates.

Normative statments: A normative statment is about what ought to beat depends on values
and cannot be tested

Economic model: a description about the economic world that includes only those features
that are needed for the purpose at hand.

Graphs

Scatter diagram: a graph that plots the value of one variable against the value of another
variable for a number of different values of each variable.

breaks in the axis: indicates that there are jumps from the origin to the first values recorded

misleading graphs: breaks can be used to highlight a relationship but can also be used to
mislead—to make a graph that lies // breaks in the axis to stretch or compress the scale

Correlation and causation: A scatter diagram tat shows a clear relationship between two
variables.

• When a high correlation exists we can assume the other variable

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Graphs used in economic models

*They are not always designed to show real world data but instead general relationships among
the variables*

Economic model: is a stripped down, simplified description of an economy or of a component

of an economy

• consists of statements about economic behaviour that can be expressed as

equations

Variables that move in the same direction

• Positive (direct) relationships

• Linear (+)

• becoming steeper (+)

• Becoming less steep (+)

Variables that move in opposite directions

• Negative (inverse) relationship

• Linear (-)

• Becoming less steep (-)

• becoming steeper (-)

Variables that have a maximum or minimum

• Maximum and minimum points

• relationship with a maximum

• relationship with a minimum

Variables that are unrelated

• Unrelated Y constant

• Unrelated X constant

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Slopes
Slope of a straight line

• y2 − y1/x 2 − x1

Slope of a curved line

• using a tangent

Slope across an arc

• use 2 other points BC and find slope of that










































Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165


























































Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)

 lOMoARcPSD|3236165

Downloaded by ahmed mousa (ahmedmousa_83@hotmail.com)