ECON 102
,Aaaa01:macoomam)ONOMICS
TEN PRINCIPLES OF ECONOMICS:TUESDAY JAN 10
-> The word economy
c omes from the Green word for "one who manages 4 household."
a scarcity:the limited nature of society resources
· Whateconomics does?The study how
of m anages its
society scarce resources
10 PRINCIPLES
THE -
I
-> Principle #1:people face tradeoffs (There is no such thing as free lunch)
· o f society getting
Efficiency:the property it
the most can from its scarce resources
·Equity:The property
of distributing economic prosperity fairly among the members of society
-> principle #2:The cost ofsomething is you
what give up to get it
·opportunity cost:Whatever you must give up to obtain something
-> principle #3:Rational people think at the margin How people make decisions
·Rational people:Those who systematically and purposefully
do the best they can to acheive their objectives.
·
Marginal changes:small incramental adjusments to a action
plan of
-> principle #4:people respond to incentives
o
incentive:something that induces a person to act
principle #5:Trade
->
can make everyone better off
o Trade allows countries to specialize in whatthey andenjoy
bobest a greater variety of goods and services
·Trade btwn two countries can make each country
b etter off
-> Absolute adv:Asituation in which an individual, business or country can produce more a
of good or service than any other producer w/the same
quantity of resources
-> comparative advi situation in which an individual, business, or country can produce a sors atl ower opportunity cost than another producer
principle #6:Markets
->
are usually
a good way to organize economic activity
where decision making authority
is distributed
distribute for a particular purpose throughout a larger group
-> to
· a llocates resources through the decentralizedecisions of many
economy:An economy that
Market firms and households as they interact
in
markets for goods and services
Ithird party)
o The invisible hand:metaphor for how, in a free market
self interestedindividuals makes an action that benefits in a social andeconomic stance
though it
was unintentional.
principle #7:Governments
->
can sometimes improve market
o utcomes #
* 5,6,7 are now ppl interact A
·Market failure:Asituation which a l eft on its
market own fails to allocate resources efficiently
·Externality:The impact
o f one persons actions on the wellbeing of a bystander/cost or benefit associatedw/ the production on consumption of a
producto r service:affect third parties.
others
for
-> positive:benefito f producing andconsuming a product. II E.g. Education is positive bic people learn anddevelop skills for careers andtheir lives
Negative:costo fproduction
->
or consumption. e.g. pollution -> results from both producing & consuming certain products
·Market power:The ability a
of single economic actor (or small group of actors) to have substantial influence on market prices
in levels of
-> Difference
treatments
Even
* when the outcomes are efficient, there can still be disparities in economic wellbeing
-> principle #8:A country's standard of living depends on its ability to produce goods and services
oproductivity:The quantity of goods and services produced from each hour of a workers time
-> principle #9:prices rise when the Government
prints too much money
oinflation:An increase in the overall iv) of prices in the economy #8,9,10
* as a whole
are now economy
-> principle #20:society
faces a short-run trade off btwn inflation and unemployment WORKS *
· This short run tradeoff plays a key role in the business cycle.
Business cycle:The irregular andlargely unpredictable fluctuations in economic activity, as measured by the production goods
of and
services or the num of pp/employed.
,FouNoR:mTONECONOMIS
Thursday January 12:Thinking like an economist (Chapter 2)
· methodology:what does itm ean to think like an economist
The field of
The scientific method:involves observation, theorey, and more observation -
the main challenge is that experiments in economics.
it is often difficult to conduct
->
ASSUMPtions:
The role of
· They can simplifix
t he complex is deciding which assumptions
world and make it easier to understand 11 the art in specific thinking to make
->
Economic models:economists have used models to learn about the world that are often composed of
most diagrams and ean's
OUR FIRST MODEL:The circular flow diagram
> visual
A model t he
of economy that shows how dollars flow through markets among households and firms
markets for goods L
and services
· Firms sell
>
Goods and serv Goods and serv
· Households buy
sold bought
v
V
F IR M S HOUSEHOLDS
a produce and sell goods and fIOW InPUTS
Of and outPUTS · Buy and consume goods &
services flow of dollars services
· Hire and use factors of · own and sell factors of
production production
-
↑
f aC+OrS Of labour, land, and
Production capi al +
Markets for factors
L
production
of
0 HOUSehOlds sell
>
· Firms buy
-> OUR SECOND MODEL:The production possibilities frontier
>production possibilities frontier:Agraph thatshows the combinations o utputs that
of t he economy can possibly
produce given the available
① of computers prod production andthe available production technology.
factors of
280-
· C
PRODUCTION
so E(0,5000)
3880 point Example a find
->
a point thatrepresents 300comp &
On
X Y
Graph
computers wheat w heat (G). Is this
3500 tons of possible?
1000 - ·D(100, 4000)
* 500 ⑧ · (7 requires
> It 65,000 his in labor. It is impossible
1808
1888 2580
· · ((250,2900)
408
-
B bl) the economy doesnt have the hrz or tech
B(400, 1000) compieson
· E
C 258 2500 1888 - · -> 100 couldworkbut
not
very
300 680 700 1800
(s80,8)
180 4088 a
c ars
Quant of prod D A efficient
->
100
·
o 250300 400 508
E ⑧ 5000
-
F
-> whatwe know:Points A-E 11 points under
are possible and efficient are possible but not efficient
PPF are
as they underutilized (e.g. workers unemployed,
factors idle)//points above the PPFCG) is not possible.
PIF AND OPPORTUNITYCOST
THE
>The opportunity cost
o fan item is m ust
what be given up to obtain thati tem
·
moving
a long involves
PPF resources (e.g. labor) from
shifting the production of one good to the other
· society faces a tradeoff:Getting
more of one good requires sacrificing
some t he other
of
600
0
0 The slope of
t he PPF
tells on the opportunity
cost
ofone goodin terms oft heother the rise over run can calculate this, byone unit
5080 7
-1000 10
= -> Opportunity o fa comp is
cost w heat
10 tons of
188
V
4888 ⑲
-> keep note that with economic growth (improvement in tech), the pptg rowth can shift outwards
3088 -> can be
The shape of the PDF a straight line or bow shaped depending on the opportunity as the economy shifts
c ost
·
2808 >IfOP cost remains constantP PF
is a straight line
1808
*
· If OP cost
of a good rises produces
as the economy more of
the good, PPFis bow-shaped
·300
400 0 s00( 180288
,Aaaa01:macoomam)ONOMICS
TEN PRINCIPLES OF ECONOMICS:TUESDAY JAN 10
-> The word economy
c omes from the Green word for "one who manages 4 household."
a scarcity:the limited nature of society resources
· Whateconomics does?The study how
of m anages its
society scarce resources
10 PRINCIPLES
THE -
I
-> Principle #1:people face tradeoffs (There is no such thing as free lunch)
· o f society getting
Efficiency:the property it
the most can from its scarce resources
·Equity:The property
of distributing economic prosperity fairly among the members of society
-> principle #2:The cost ofsomething is you
what give up to get it
·opportunity cost:Whatever you must give up to obtain something
-> principle #3:Rational people think at the margin How people make decisions
·Rational people:Those who systematically and purposefully
do the best they can to acheive their objectives.
·
Marginal changes:small incramental adjusments to a action
plan of
-> principle #4:people respond to incentives
o
incentive:something that induces a person to act
principle #5:Trade
->
can make everyone better off
o Trade allows countries to specialize in whatthey andenjoy
bobest a greater variety of goods and services
·Trade btwn two countries can make each country
b etter off
-> Absolute adv:Asituation in which an individual, business or country can produce more a
of good or service than any other producer w/the same
quantity of resources
-> comparative advi situation in which an individual, business, or country can produce a sors atl ower opportunity cost than another producer
principle #6:Markets
->
are usually
a good way to organize economic activity
where decision making authority
is distributed
distribute for a particular purpose throughout a larger group
-> to
· a llocates resources through the decentralizedecisions of many
economy:An economy that
Market firms and households as they interact
in
markets for goods and services
Ithird party)
o The invisible hand:metaphor for how, in a free market
self interestedindividuals makes an action that benefits in a social andeconomic stance
though it
was unintentional.
principle #7:Governments
->
can sometimes improve market
o utcomes #
* 5,6,7 are now ppl interact A
·Market failure:Asituation which a l eft on its
market own fails to allocate resources efficiently
·Externality:The impact
o f one persons actions on the wellbeing of a bystander/cost or benefit associatedw/ the production on consumption of a
producto r service:affect third parties.
others
for
-> positive:benefito f producing andconsuming a product. II E.g. Education is positive bic people learn anddevelop skills for careers andtheir lives
Negative:costo fproduction
->
or consumption. e.g. pollution -> results from both producing & consuming certain products
·Market power:The ability a
of single economic actor (or small group of actors) to have substantial influence on market prices
in levels of
-> Difference
treatments
Even
* when the outcomes are efficient, there can still be disparities in economic wellbeing
-> principle #8:A country's standard of living depends on its ability to produce goods and services
oproductivity:The quantity of goods and services produced from each hour of a workers time
-> principle #9:prices rise when the Government
prints too much money
oinflation:An increase in the overall iv) of prices in the economy #8,9,10
* as a whole
are now economy
-> principle #20:society
faces a short-run trade off btwn inflation and unemployment WORKS *
· This short run tradeoff plays a key role in the business cycle.
Business cycle:The irregular andlargely unpredictable fluctuations in economic activity, as measured by the production goods
of and
services or the num of pp/employed.
,FouNoR:mTONECONOMIS
Thursday January 12:Thinking like an economist (Chapter 2)
· methodology:what does itm ean to think like an economist
The field of
The scientific method:involves observation, theorey, and more observation -
the main challenge is that experiments in economics.
it is often difficult to conduct
->
ASSUMPtions:
The role of
· They can simplifix
t he complex is deciding which assumptions
world and make it easier to understand 11 the art in specific thinking to make
->
Economic models:economists have used models to learn about the world that are often composed of
most diagrams and ean's
OUR FIRST MODEL:The circular flow diagram
> visual
A model t he
of economy that shows how dollars flow through markets among households and firms
markets for goods L
and services
· Firms sell
>
Goods and serv Goods and serv
· Households buy
sold bought
v
V
F IR M S HOUSEHOLDS
a produce and sell goods and fIOW InPUTS
Of and outPUTS · Buy and consume goods &
services flow of dollars services
· Hire and use factors of · own and sell factors of
production production
-
↑
f aC+OrS Of labour, land, and
Production capi al +
Markets for factors
L
production
of
0 HOUSehOlds sell
>
· Firms buy
-> OUR SECOND MODEL:The production possibilities frontier
>production possibilities frontier:Agraph thatshows the combinations o utputs that
of t he economy can possibly
produce given the available
① of computers prod production andthe available production technology.
factors of
280-
· C
PRODUCTION
so E(0,5000)
3880 point Example a find
->
a point thatrepresents 300comp &
On
X Y
Graph
computers wheat w heat (G). Is this
3500 tons of possible?
1000 - ·D(100, 4000)
* 500 ⑧ · (7 requires
> It 65,000 his in labor. It is impossible
1808
1888 2580
· · ((250,2900)
408
-
B bl) the economy doesnt have the hrz or tech
B(400, 1000) compieson
· E
C 258 2500 1888 - · -> 100 couldworkbut
not
very
300 680 700 1800
(s80,8)
180 4088 a
c ars
Quant of prod D A efficient
->
100
·
o 250300 400 508
E ⑧ 5000
-
F
-> whatwe know:Points A-E 11 points under
are possible and efficient are possible but not efficient
PPF are
as they underutilized (e.g. workers unemployed,
factors idle)//points above the PPFCG) is not possible.
PIF AND OPPORTUNITYCOST
THE
>The opportunity cost
o fan item is m ust
what be given up to obtain thati tem
·
moving
a long involves
PPF resources (e.g. labor) from
shifting the production of one good to the other
· society faces a tradeoff:Getting
more of one good requires sacrificing
some t he other
of
600
0
0 The slope of
t he PPF
tells on the opportunity
cost
ofone goodin terms oft heother the rise over run can calculate this, byone unit
5080 7
-1000 10
= -> Opportunity o fa comp is
cost w heat
10 tons of
188
V
4888 ⑲
-> keep note that with economic growth (improvement in tech), the pptg rowth can shift outwards
3088 -> can be
The shape of the PDF a straight line or bow shaped depending on the opportunity as the economy shifts
c ost
·
2808 >IfOP cost remains constantP PF
is a straight line
1808
*
· If OP cost
of a good rises produces
as the economy more of
the good, PPFis bow-shaped
·300
400 0 s00( 180288
