Econ 1051 1st Edition Lecture 2 Outline of Last Lecture I. Discuss the syllabus Outline of Current Lecture I. Trade-off II. Opportunity Cost III. Normative v. Positive Analysis IV. Economy Types (Centrally Planned v. Market)V. Microeconomics v. Macroeconomics Current LectureI. Trade-Off a. Definition i. The idea that because of scarcity, producing more of one good or service means producing less of another good or service b. Trade-offs force society to make choices when answering the three main economic questions:i. What goods and services will be produced?ii. How will the goods and services be produced?iii. Who will receive the goods and services?II. Opportunity Costa. Definition i. The highest valued alternative that must be given up to engage in an activity III. Normative and Positive Analysis a. Normative Analysis i. Concerned with what ought to be b. Positive Analysis i. Concerned with what is IV. Economy Types a. Centrally Planned Economiesi. An economy in which the government decides how economic resources will be allocated ii. The standards of living of the average person in a centrally planned economy tend to be lowThese 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.b. Market Economies i. An economy in which the decisions of households and firms interacting inmarkets allocate economic resources ii. Firms must produce goods and services that meet the wants of consumers, or the firms will go out of business iii. To study how people make choices in markets we must consider three important ideas:1. People are rational 2. People respond to economic incentives 3. Optimal decisions are made at the marginiv. Some economists argue the Great Depression has expanded government intervention, therefore the US, Canada and western Europe are not pure market economies but rather a mixed economy V. The Difference Between Microeconomics and Macroeconomics a. Microeconomics i. The study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices ii. Issues include: 1. How consumers react to changes in product prices 2. How firms decide what prices to charge for their products b. Macroeconomics i. The study of the economy as a whole ii. Issues include: 1. Inflation2. Unemployment 3. Economic
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