ECON 1123 1st Edition Lecture 1 Outline Lecture OneI. Economic AnalysisA. Model BuildingB. Ceteris ParibusC. Efficiency Versus EquityII. Some Key IdeasA. Scarcity and ChoiceB. Opportunity Cost C. Choosing at the MarginD. IncentivesE. Market EfficiencyIII. Economic ResourcesA. LaborB. CapitalC. LandD. EntrepreneurshipIV. Characteristics of Competitive MarketsV. Characteristics of Imperfectly Competitive MarketsVI. Market StructuresVII. Output Markets and Resource MarketsVIII. Choosing at the MarginIX. Households Versus FirmsLecture 1 NotesX. 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 costThese 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 mostXI. Some Key IdeasF. Scarcity and Choice- Scarce resources are limited resources G. Opportunity Cost H. Choosing at the MarginI. IncentivesJ. Market EfficiencyXII. Economic Resources (Ultimately these things are scarce)E. Labor- human abilities used to produce material goods and servicesF. Capital- human made aids to production (examples: machinery, tools, factories—goods used to produce other goods)G. Land- all natural resources useable in productionH. Entrepreneurship- human resources and technology that bring all of these other economic resources together, entrepreneurs also bear riskNote: A key assumption is the entrepreneurs try to maximize profits. The goalis 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 Markets-A. Many independently active buyers and sellersB. 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 productsXIV.Characteristics of Imperfectly Competitive Markets-A. Fewer independently acting buyers and sellersB. Some control over market priceC. Restrictions on entry or exitD. Heterogeneous products (not all the same quality, price)XV. Market Structures-A. Pure Competition: many sellers, homogeneous productsB. Monopolistic Competition: several sellers, differentiated productsC. Oligopoly: Few Sellers, differentiated productsD. Pure Monopoly: One Seller, Unique ProductsNote: 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 servicesA. 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 FirmsA. 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