Econ 1202 1st Edition Lecture 5Outline of Lecture 3 (Principles of Macroeconomics (continued))I. Adam SmithII. 3 Fundamental Questions every society facesa. It is important how we answer these questionsIII. Rules of the gameIV. Incentivesa. Define competition V. Markets VI. We are tradingVII. Economics and the study of human choiceOutline of Lecture 4 (Principles of Macroeconomics (continued)/ Production Possibilities Curve/ Markets, Trade, and the Law of Comparative Advantage)I. Economics, Incentives, and Rules of the GameII. How is a nation’s output measured?III. What determines a nation’s production “capabilities” or “possibilities”IV. Short Hand Formula: The Production FunctionV. Production Possibilities CurvesVI. MarketsVII. Trade Lowers CostsPrinciples of Macroeconomics (continued)I. Economics, Incentives, and Rules of the Gamea. Economics is all around us and don’t forget about the (unintended) consequences or secondary effectsi. How does (whatever we are looking at) impact the costs/or benefits to the parties involved?b. At-Will Employment Laws-employers can terminate an employee or the employee can just leavec. Just Cause Employment Laws- employers have to show a very good cause for terminationProductive Possibilities CurveII. How is a nation’s output measured?a. Gross Domestic Product (GDP) is the market value of all final goods and services produced in a country during a period of time, typically one year or quarterly.b. A nation’s standard of living is determined by its ability to produce goods and services III. What determines a nation’s production “capabilities” or “possibilities”a. The Factors of Production:i. Laborii. Capital-goods that produce other goodsiii. Human Capital-skills and education of workersiv. Landv. Natural Resourcesvi. Technologyvii. Entrepreneurs viii. InstitutionsIV. Short Hand Formula: The Production Functiona. Y=GDP=f(L, K, HC, N, NR, E, Tech, Institutions)b. Y/LY/PopV. Production Possibilities Curvea. Production Possibilities Curveb. Economic Growth (technological change or expansion of resources) results in an outward shift in the production possibilities curve i. Economic growth in on industry will result in an outward shift only in that industryMarkets, Trade, and the Law of Comparative AdvantageVI. Marketsa. Markets are generally, not exclusively, a good way to organize economic activity because they create economic wealth which we are better with tradeb. How?i. By channeling competitive behavior into socially productive outcomesEfficient use of resourcesAGInefficient use of resourcesMGii. By allowing goods and services to flow from those that value the goods and services less to those that value the goods and services moreiii. By allowing individuals, companies, and countries to trade goods and services based off different costs of production, hence allowing the low cost produces to produce the goods and services VII. Trade Lowers Costsa. Trade allows us to specialize, which makes us more productive and lowers costs of productionb. Without trade there would be no specializationc. Specialization takes time and effort to perfect skills and increases knowledge in those skillsd. Trade takes advantage of differences in costsi. It allows individuals, companies, and countries to trade goods and services based off differences in the costs of production with the low cost producer