ECON 1123 1st Edition Lecture 1 Outline Lecture One I Economic Analysis A Model Building B Ceteris Paribus C Efficiency Versus Equity II Some Key Ideas A Scarcity and Choice B Opportunity Cost C Choosing at the Margin D Incentives E Market Efficiency III Economic Resources A Labor B Capital C Land D Entrepreneurship IV Characteristics of Competitive Markets V Characteristics of Imperfectly Competitive Markets VI Market Structures VII Output Markets and Resource Markets VIII Choosing at the Margin IX Households Versus Firms Lecture 1 Notes X Economic Analysis We begin to make our Economic Analysis with Observations that become data then we develop explanations theories then we test the theories Empirical More Data More theories more empirical testing etc D Model Building An economic model is a stylized representation of reality E Ceteris Paribus In empirical data many economic conditions are changing at the same time The simplifying assumption of ceteris paribus means that we focus on one KEY relationship at a time and all other economic conditions held conceptually constant F Efficiency Versus Equity Efficiency Positive Economics is doing the best with what you ve got versus Equity Normative Economics is dealing with what is fair or just Note Two types of Efficiency Productive Efficiency producing goods at the lowest possible cost 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 Allocative Efficiency distributing goods to the people who value them the most XI Some Key Ideas F Scarcity and Choice Scarce resources are limited resources G Opportunity Cost H Choosing at the Margin I Incentives J Market Efficiency XII Economic Resources Ultimately these things are scarce E Labor human abilities used to produce material goods and services F Capital human made aids to production examples machinery tools factories goods used to produce other goods G Land all natural resources useable in production H Entrepreneurship human resources and technology that bring all of these other economic resources together entrepreneurs also bear risk Note A key assumption is the entrepreneurs try to maximize profits The goal is to maximize the total revenues and minimize the total costs Good ideas will produce positive profits and bad ideas will produce negative profits XIII Characteristics of Competitive MarketsA Many independently active buyers and sellers B Individual buyers and sellers have no control over market price price takers C Freedom of Entry and Exit into and out of the market no technological and institutional barriers to entry and exit D Highly homogeneous products XIV Characteristics of Imperfectly Competitive MarketsA Fewer independently acting buyers and sellers B Some control over market price C Restrictions on entry or exit D Heterogeneous products not all the same quality price XV Market StructuresA Pure Competition many sellers homogeneous products B Monopolistic Competition several sellers differentiated products C Oligopoly Few Sellers differentiated products D Pure Monopoly One Seller Unique Products Note In any of these market structures the sellers objective is to maximize the profit as decided by comparing marginal revenues MR with marginal costs MC XVI Output Markets and Resource Markets A market is an institutional arrangement for the exchange of economic goods and services A Output Markets outputs of economic goods and services being exchanged for money Buyers of outputs are households suppliers of outputs are firms B Resource Markets economic resources are exchanged for money Demanders of resources are firms sellers of resources are households XVII Choosing at the Margin your choice is based on a benefit versus cost comparison If the benefit the cost then the action should be taken You compare marginal benefit MB to the marginal cost MC XVIII Households Versus Firms A Household an individual but not necessarily just one person it could be a family B Firms competitive firms Monopolistically or oligopolistically The suppliers of goods the households need