Changes

'''Next week:  Midterm exam, about 30 multiple choice questions.  Closed book.  No penalty from wrong answers (the CLEP exam has no penalty for wrong answers either).'''

'''Next week:  Midterm exam, about 30 multiple choice questions.  Closed book.  No penalty from wrong answers (the CLEP exam has no penalty for wrong answers either).'''

The word "economy" is derived from the Greek word for "household", which is the most basic and perhaps the most efficient unit of an economy.  Think of how there is division of labor; diminishing marginal utility for activities; supply and demand for food in the refrigerator; both "long run" and "short run" decisions; economies of scale in buying dinner; and very few transaction costs within a family.  The family or household unit may be the most efficient structure possible.

The word "economy" is derived from the Greek word for "household", which is the most basic and perhaps the most efficient unit of an economy.  Think of how there is division of labor among family members; diminishing marginal utility for activities; supply and demand for food in the refrigerator; both "long run" and "short run" decisions; economies of scale in buying dinner; and very few transaction costs within a family.  The family or household unit may be the most efficient structure possible.

As we prepare for the midterm next week, it is worth emphasizing two important points.  First, keep “supply” and “demand” separate in your mind.  When asked about “returns to scale,” for example, realize that is purely a function of supply.  It has nothing to do with demand.  Do not cite the demand when determining the returns to scale.  This is a common mistake.  Avoid it.

As we prepare for the midterm next week, it is worth emphasizing two important points.  First, keep “supply” and “demand” separate in your mind.  When asked about “returns to scale,” for example, realize that is purely a function of supply.  It has nothing to do with demand.  Do not cite the demand when determining the returns to scale.  This is a common mistake.  Avoid it.

Second, realize that the market acts in ways that are contrary to what you would prefer.  We may care what happened yesterday, for example, but the demand curve does not.  Nor do stock buyers care if selling off their shares will cause a company to go out of business and everyone to lose their job.  The market maximizes efficiency, which can sometimes have unfortunate or counter-intuitive results.  Someone who opposes communism in China can affect his own buying decisions, but do not confuse his views and utility with that of the market, which may not care at all whether something cheaper was made in communist China.  The market sets the price.

Second, realize that the market acts in ways that are contrary to what you would prefer.  We may care what happened yesterday, for example, but the demand curve does not.  Nor do stock buyers care if selling off their shares will cause a company to go out of business and everyone to lose their job.  The free market maximizes efficiency, which can sometimes have unfortunate or counter-intuitive results.  Someone who opposes communism in China can affect his own buying decisions, but do not confuse his views and utility with that of the market, which may not care at all whether something cheaper was made in communist China.  The market sets the price.

Let’s pause for a moment and divide economic concepts into three levels of difficulty: Easy, Medium and Honors:

Let’s pause for a moment and divide key economic concepts into three levels of difficulty: Easy, Medium and Honors:

   

   

===Easy===

===Easy===