KSU ECON 1000 Contemporary
Economic Issues exam study
guide notes Kennesaw State
University 2024 lOMoARcPSD|6353920
ECON 1000 – Contemporary Economic Issues (Spring 2019) “Foundations of Economics”
Relevant Readings from the Required Textbook:
•Chapter 1, Foundations of Economics
Definitions and Concepts:
•• economics – the social science that studies how people make
decisions in the face of scarcity and the
resulting impact of such decisions on both society as a whole and the individual members therein.
•• scarcity – a universal phenomenon that arises because resources
are limited.
•• tradeoffs – the recognition that in many situations acquiring more
of one thing can often only be done at the expense of getting by with
less of something else.
•• microeconomics – the study of how individual decision
maker behave and interact with each other, often with a focus
on how
households and firms behave and interact with each other in markets.
•• macroeconomics – the study of the functioning and performance of a society’s economy as a whole, often with a focus on levels of and changes in aggregate measures such as the inflation rate,
unemployment rate, and gross domestic product growth rate
•• positive statement – a statement that aims to describe how the world actually is or actually functions.
•• normative statement – a statement that aims to assess the desirability of how the world is or functions,
perhaps with suggestions of things that could be done to improve matters.
•• rational decision maker – someone with a well-defined goal, who takes actions to achieve the goal as best as possible.
•• total benefits – the gains that a person realizes from taking an action.
oSales
oThey are sales
•• total costs – the burdens that a person incurs from taking an action. lOMoARcPSD|6353920
oCosts
-Sales minues your costs are what you get to keep = econ surplus
1
total economic surplus – the difference between total benefits and total costs.
-Another word for profit – economic surplus
•Cost-Benefit Principle – a guide to decision-making which states that an individual should undertake an activity if and only if the additional benefit of doing so is greater than or equal to the additional
cost of doing so.
oIf and only if
oIm not going to do it unless I make money
oKnow this for exam
•marginal benefit – the change in the value of total benefits as more of an activity is undertaken.
oIf there are five in a room, one walks in, that 6th is the marginal.
Th enext one. Th eamoung of sales if you sold 8 shirts, the 9th shirt
oThe sales you make for selling the next one
•marginal cost – the change in the value of total costs as more of an activity is undertaken.
oCost associated with th e9th shirt.
oThe cost incurred from selling the next one
•Incentive Principle – a summary of how behavior of a rational decision maker will change as costs or benefits change: (i) if the marginal benefit of an activity increases, then a rational person will engage in more of the activity, whereas (ii) if the marginal cost of an
activity increases, then a rational person will engage in less of the activity.
oSometimes the marginal bene goes down. That’s how stuff goes on
sale. They order too much and have a lot left so they have to drop the price.
oLock smith: at some point no body wants to be a locksmith ebcuase there is too
much competition for it to be worth it.
oCould be something to considering when thinking about starting a business.
Economic Issues exam study
guide notes Kennesaw State
University 2024 lOMoARcPSD|6353920
ECON 1000 – Contemporary Economic Issues (Spring 2019) “Foundations of Economics”
Relevant Readings from the Required Textbook:
•Chapter 1, Foundations of Economics
Definitions and Concepts:
•• economics – the social science that studies how people make
decisions in the face of scarcity and the
resulting impact of such decisions on both society as a whole and the individual members therein.
•• scarcity – a universal phenomenon that arises because resources
are limited.
•• tradeoffs – the recognition that in many situations acquiring more
of one thing can often only be done at the expense of getting by with
less of something else.
•• microeconomics – the study of how individual decision
maker behave and interact with each other, often with a focus
on how
households and firms behave and interact with each other in markets.
•• macroeconomics – the study of the functioning and performance of a society’s economy as a whole, often with a focus on levels of and changes in aggregate measures such as the inflation rate,
unemployment rate, and gross domestic product growth rate
•• positive statement – a statement that aims to describe how the world actually is or actually functions.
•• normative statement – a statement that aims to assess the desirability of how the world is or functions,
perhaps with suggestions of things that could be done to improve matters.
•• rational decision maker – someone with a well-defined goal, who takes actions to achieve the goal as best as possible.
•• total benefits – the gains that a person realizes from taking an action.
oSales
oThey are sales
•• total costs – the burdens that a person incurs from taking an action. lOMoARcPSD|6353920
oCosts
-Sales minues your costs are what you get to keep = econ surplus
1
total economic surplus – the difference between total benefits and total costs.
-Another word for profit – economic surplus
•Cost-Benefit Principle – a guide to decision-making which states that an individual should undertake an activity if and only if the additional benefit of doing so is greater than or equal to the additional
cost of doing so.
oIf and only if
oIm not going to do it unless I make money
oKnow this for exam
•marginal benefit – the change in the value of total benefits as more of an activity is undertaken.
oIf there are five in a room, one walks in, that 6th is the marginal.
Th enext one. Th eamoung of sales if you sold 8 shirts, the 9th shirt
oThe sales you make for selling the next one
•marginal cost – the change in the value of total costs as more of an activity is undertaken.
oCost associated with th e9th shirt.
oThe cost incurred from selling the next one
•Incentive Principle – a summary of how behavior of a rational decision maker will change as costs or benefits change: (i) if the marginal benefit of an activity increases, then a rational person will engage in more of the activity, whereas (ii) if the marginal cost of an
activity increases, then a rational person will engage in less of the activity.
oSometimes the marginal bene goes down. That’s how stuff goes on
sale. They order too much and have a lot left so they have to drop the price.
oLock smith: at some point no body wants to be a locksmith ebcuase there is too
much competition for it to be worth it.
oCould be something to considering when thinking about starting a business.
