ECON 201 1st Edition Lecture 1 Outline of Last Lecture I Class Cancelled Outline of Current Lecture Thursday 1 8 Friday discussion section before the midterm there will be a quiz I Introduction A The Economic Problem How to allocate resources to the uses that most benefit society 1 The Market a main source a Adam Smith s Invisible hand price directs resources b How much coffee you want to have etc c Let individuals see the relative prices of individual activities and that s how they decide what to pay for d Price theory 2 Central Planning a Resources directs by governing body legislation or dictatorship b Some sort of hierarchy that sets allocations c Corporate hierarchies exist told when have to teach and what have to teach 3 Island Economics a Very little exchange between individuals b Self production and self consumption c Method for deciding how much time and money you are going to commit to your own production brushing your own teeth d Personal hygiene B Normative vs Positive Economic Analysis 1 Normative economic question cannot be answered objectively a Issues of fairness b Good it would be good if we rose the taxes on gasoline c questions about what is right best or fair are normative issues that each individual decides for themselves d Subjective 2 Positive economic questions have objective answers They are questions that can be decisively tested and proven right or wrong a If incomes taxes rise by 5 consumer spending on housing will fall by X These 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 Objective C Microeconomics vs Macroeconomics 1 Micro is the study of the behavior of individuals institutions economic agents a What s the optimal amount of students to enroll in the UO b How individuals make decisions c How decisions are made d How people s tastes affect their consumption spending e How countries exchange commodities f Decision or price theory 2 Macro is the study of performance of an economy or outcomes a Unemployment b Growth GDP c Money and banking credit d Overall performance of the economy II Production Possibilities A The production possibilities frontier The maximum amount of any combination of goods that can be produced Production the amount produced Possibilities what is possible Frontier the edge or limit or boundary What is possible to do with your time A two good economy III Markets A market is a mechanism of exchange of goods and services Not necessarily a fixed centralized location A Perfectly Competitive Market 1 Many buyers and many sellers a No single buyer or seller can influence price b If Starbucks started raising prices on coffee you could go anywhere else ie Next door to caf roma but there are so many buyers out there that you can t argue Starbuck s price c Hard to influence and negotiate your wage 2 Full information about the goods and services exchanged a Consumers know what they are buying b Producers know the value of the money they receive c Understand the quality of the product and the quality of the dollar d Thick market of many buyers and many sellers that are fully informed on the quality of the goods Markets are two sided Demand and Supply Price is determined by the interaction of supply and demand Joint reasoning Supply and demand interacting and complicating things B Demand Economic demand is the willingness and ability to pay for a good or service at any given price Maximum that they are willing and able to pay maybe not happy about it or like it Has a need on a survival level diabetic that needs insulin cancer patient that needs therapy 1 Law of Demand at higher prices fewer units or smaller quantity of a good or service are demanded 2 Changes in Demand a Preferences you like it and need it in a sense b Income how able you are to pay for something c Relative Prices of other goods Its cheaper to go to Starbucks than make it myself d Need to know their preferences tastes 3 Demand is determined by preferences