Summary Notes

1
Summary Notes

• Economics 230
• Part I

2
Chapter I

• Economics is concerned with the implications of
  relative scarcity
• A consequence is that there is no free lunch
• Rational decision makers compare benefits and
  costs of choices. How?
• Benefit-Cost Principle Take an action if the
  added benefits exceed the added costs

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Applying The Benefit-Cost Principle

• Reservation prices
• Economic surplus
• Opportunity cost
• Using graphics
• Checking on rationality

4

• Pitfalls in Making Decisions
• 1 Ignoring Opportunity Costs
• 2 Failing to Ignore Sunk Costs
• 3 Failing to Understand the
• Average-Marginal Distinction

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Chapter II

• Comparative advantage is an application of
  opportunity cost
• Specialization and division of labor can increase
  the total output of the community
• Principle of Increasing Opportunity Cost
• Comparative advantage determines the pattern of
  trade
• Production Possibilities Frontier Model
• Benefits of Trade

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Chapter III

• Specialization and division of labor requires
  that people trade with each other. Model of
  single market describes the process.
• Demand reflects intentions of buyers
• Supply reflects intentions of sellers
• Equilibrium price is one where buyers and sellers
  intentions are in balance
• Study effects of shifts in supply and demand

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Chapter 7

• The efficiency of a perfectly competitive market
  system
• Maximizing the economic surplus
• Cost of price ceilings and price floors
• The effect of taxes and subsidies on a
  competitive economy

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Chapter 9

• Using comparative advantage to understand trade
  patterns between regions and countries
• Analyzing international trade in a good using
  supply and demand
• Impact of trade restrictions