Income level of a country can affect what commodities are demanded; poorer countries demand more in terms of food produced, while richer countries demand luxury goods.ECON 205 2nd Edition Lecture 2Outline of Last Lecture II. Introduction to CourseA. Reading of syllabus III. The study of Economics—Macroeconomics, Macroeconomics vs. MicroeconomicsIV. Scope of Economics—Scarcity and AllocationV. Method of Economics—Assumptions, Verification, Theories and ModelsVI. Evolution of Economic GrowthOutline of Current LectureI. Opportunity cost – economic cost – the best forgone opportunity II. Efficient market – profit opportunity is eliminated instantaneouslyIII. Economic growth – is it continuous process? From the 13th century to presentIV. Supply and demandCurrent LectureI. Opportunity cost is the next best thing to use resources for. Resources are scarce, and we have to allocate them.We have to make assumptions in order to make economic models:1) Ceteris paribus: while making a model, only one variable can change. All other things remain constant.2) All parties involved maintain rational behavior. 3) Optimization and efficiency should be determined.4) Incentives motivate people.A. Rewards—subsidies and grants for industries and businesses.B. Penalties—taxes (not income tax).II. Markets coordinate self-interest of millions of people to achieve social goods. The father of economics is understood to be Adam Smith with his book, The Wealth of Nations (1776).-All parties work to achieve maximum profit and maximum efficiency.-Tampering with the laws of market (supply and demand) affect the economy.III. Economic growth is said to have begun in the 1300s.- Economic development matters—economic growth, institutions, and technology are the foundations of wealth.- Economic cycles are a part of any capitalism system.- The business cycle is a cycle of booms (extensive economic growth) and busts (economicdecline) that are part of any capitalist economy.The per-capita incomes of nations tend to converge over time as technological development advances.Poorer countries tend to have more extensive economic growth (as a percentage of growth of the country’s entire economy) while richer nations grow more slowly.IV. Supply is the quantity of a commodity available, while demand is the quantity of a commodity consumers are willing to purchase.The elasticity of demand is the change of prices in response to quantity demanded. As prices go up, demand goes down, and vice versa.The elasticity of supply is the change of prices in response to quantity supplied. As prices increase, suppliers are willing to produce more of a commodity; conversely, as prices go down, the opposite is true.Sociopolitical indicators are important in determining supply and demand):I. Taboo or preference of a culture (i.e. kosher laws in Judaism or Hindu prohibitions against beef) can affect demand of a commodity.II. War or weather can affect the supply and demand of an object (i.e. drought).Income level of a country can affect what commodities are demanded; poorer countries demand more in terms of food produced, while richer countries demand luxury