Econ 201 1st Edition Lecture 3Outline of Last Lecture 1. Ten principles Economic Overview2. ten principles Economic (1~4)3. Examples of Opportunity costOutline of Current Lecture 4.Ten principles Economics(5~10) 5.Concept of EfficencyCurrent LectureB. Actors Interacting5. Free exchange (trade) results in mutual gains. Both parties, buyer and seller, are better off. “The gains from trade.”6. Markets are good (usually). They lead to efficient allocation of resources. Notion of the Invisible HandRole of Prices: Signals about economic conditions – needs & possibilities7. Government may be able to help where markets fail. Market Failure from: Externalities; Market Power; Asymmetrical Information; Equity (fairness) But government failure is also possible.C. Macroeconomic Principles8. Prosperity (income) depends on production. 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.Circular flow illustrates: Total Income = Total Value of Product9. Money is the root of inflation. Excessive money growth causes inflation.10. There is a short run tradeoff between inflation and unemployment. Tradeoff in the policy sense: Macroeconomic policy that reduces unemployment tends to increase inflation, and vice versa.In the long run, there is no such tradeoff: economy tends toward a “natural rate of unemployment” independently of inflationConcepts of Efficiency• General: Doing the best we can with resources available.• Productive Efficiency Achieving a point on the PPF.Producing at least cost.Using resources where they have Comparative Advantage.• Allocative Efficiency Producing the product mix that best meets the needs of the community. If trade is possible, produce to achieve the best trade potential.Production ratio is then separate from consumption
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