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Microeconomics Notes with Important Terms and Graphs

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Microeconomics Notes with Important Terms and Graphs

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  • November 2011
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Introduction
Foundations
Basics
Language of economics

Fundamental problem facing mankind

“Our resources are limited (scarce), but our wants (aspirations to good life , ambitions , needs, dreams) are unlimited.”

SCARCITY = Budget Constraint

Proof Resources Limited
* Time: 24 hours day
* Time is money
* 20 hours in bed (leisure)
* Safe drinkable water = Less than 1% of total water
* $2000 apt/studio, cook own food
* $2000000 a month
* Mansion
* Personal Cook
* Personal Bodyguard
* House Maintenance

Resources are limited
- There is a limit to how much one can achieve, produce, consume

Solution: How to raise living standard?
* Become Chinese (average salary in china < US)
* Live in caves (Still have 24 hours)
* Efficient choices / Management of scarce resources ✓

Economics = the study of how humans (society) manage the scarce resources. All are subject to economic analysis because of scarce resources All are subject to economic analysis because of scarce resources

Issues
* College Education (Subject to economic analysis)
* Church (Subject to economic analysis)
* Business, Entrepreneurship (Subject to economic analysis) * Election (Subject to economic analysis)
* Size of US family is down.
* Romance + Marriage

Given Scarcity

More on one activity
More on one activity

Tradeoff
Less on the rest

Less on the rest

Opportunity Cost
* No free lunch!
* Any choice => “Cost”
* Opportunity cost = best alternative lost, sacrificed, given us as we make decisions. * Opp. Cost -> Full cost of college (BA -> 4 Years) * Explicit Cost ($) Tuition, books, supplies = $20,000 a year. * Hidden Cost (Implicit) -> Lost Earnings -> $25,000 * Stress + Anxiety -> Health Management -> $5000

Benefits of college
* Private Benefits
* Higher Income
* $45000 X 40 = 1,800,000

* Public Benefits...

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