ECO 105 1nd Edition Lecture 1Outline of Current Lecture I. What is economics?a. DefinitionsII. VocabularyIII. Economy/Economiesa. Definitionb. Spectrumi. Market Economyii. Command Economyc. Questioni. AnswerIV. Microeconomics and Macroeconomicsa. Definitioni. Focusb. Definitioni. FocusV. Principles of Economicsa. Principle 1i. Definition1. Resourcesb. Principle 2i. Examplec. Principle 3i. Definitionii. Exampled. Principle 4i. Types1. Definitionii. Exampleiii. Theorye. Principle 5i. Examplef. Principle 6i. Definitiong. Principle 7These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. Keyh. Principle 8i. Definitionii. Definition1. Questiona. AnswerCurrent LectureI. What is economics?a. The social science of production, distribution, and consumption of goods and servicesb. Alfred Marshall: Ordinary business of lifec. The study of how individuals/human beings (try to) satisfy their infinite desires ina world that is finited. Rhetorical tool for politicians and businessmenII. Vocabularya. Productionb. Consumptionc. Distribution/allocationd. Desires = demande. Goods and demand for goods does not include any sort of valuation of intrinsic value (in theory)III. Economy/Economiesa. Studied through comparative economic systemsb. Market ------------------------- Commandi. Market economy = individuals are free to choose about production and consumptionii. Command economy = central authority chooses the production and consumption decisions of individualsc. Where does Capitalism fall on this spectrum? Socialism? Communism?i. We don’t knowIV. Microeconomics and Macroeconomicsa. Microeconomics (half) = individual and firm (businesses) behaviori. Productivity, cost, revenue, profit, utilityb. Macroeconomics (half) = whole economy (usually on the national scale)i. Growth, recessions, inflation, interest rates, monetary and fiscal policyV. Principles of Economicsa. Scarcity = resources are scarcei. Resource = anything that can be used to produce something else1. Resources = factors of production (labor = L, capital = K)b. Individuals make choices about the allocation of scare resourcesi. Choice to come to university, choice to come to class, choice to take notesc. Opportunity Costi. Value of the next best option (what you give up in order to get something else)ii. Opportunity cost of attending university: tuition and fees, forgone earningsd. Decisions are made on the margini. Trade-offs and marginal analysis1. Marginal analysis = an analysis of incremental changeii. Wednesday, do I wake up and come to class or stay in bed? Monday, same… (Endless cycle)iii. In theory: ∆y/∆x, dy/dxe. Decisions are based on incentivesi. If nothing is taught in class and passing grades are given freely, then thereis no incentive to come to class.f. There are gains for trade when individuals specializei. Learn how to do something wellg. Markets equilibrate (natural sciences)i. Equilibriumh. Markets are efficient (natural sciences)i. An economy is efficient when no individual can be made better off without making another worse offii. Equity = fairness1. What is the relationship between efficiency and equity?a.