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CSU IE 270 - Scarcity and Allocation

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IE 270 1st Edition Lecture 7Outline of Last Lecture II. Food Security New to America Outline of Current Lecture II. Scarcity and AllocationA. The view of economicsIII. Adam SmithIV. Smith’s 3 great insightsV. Specialization and the division of labor VI. MarketCurrent LectureScarcity and AllocationEconomics- Evaluating choices made under scarcity- Making choices to achieve your goals subject to resource constraints- Element of economic choices…1. Goals2. Resource ConstraintsAdam Smith “The Wealth of Nations,” 1776- Exchange and trade are as old as human history- His writing is a true work of genius- Current conflicts over globalization and trade are just the latest manifestation of age old issuesSmith’s 3 Great Insights1. Division of labor2. Gains from exchange 3. The “invisible hand” of self interestDivision of laborThese 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.- If we divide up labor, power will increase. Specialization increases the productivity of labor- Machines further magnify the productivity of human labor- Separation of trades as a result of division of labor- Release labor from agriculture to work in other trades- Causes economic developmentExchange- Separation of trade leads to interdependence- Exchange of one’s own product for another- Free (non-coercive, voluntary) exchange leaves no party worse of- Value has 2 meanings ( value in use or exchange)1. Utility of a particular object2. The power of purchasing other goods - Production and exchange aren’t about money. It is about satisfying goals with natural constraints- Money is just a counting device that provides an easy medium for exchange. It is pure exchange value.The “Invisible Hand”- It is…”necessary consequence of the faculties of reason and speech”- To signify to another this is mine- Self interest leads to exchange to make oneself better of- Self interest—meeting more of your needs/achieving more of your goals by finding better ways to achieve them- Generally “more is better than less”Specialization and the division of labor- 1st to the increase of dexterity (efficiency) in every particular work place- 2nd to the saving of time which is commonly lost in passing from one species of work to another (you’re wasting time when not focusing on one specific task/thing)- 3rd to the invention of great machines, which facilitate and abridge labor and enable one man to do the work of many Market- Scope of opportunity to exchange= “THE MARKET”- The market gives opportunity to dispose of the surplus of one’s labor which is over and above one’s own consumption - Provides opportunity to use others labor- Production, commerce, transportation all lead to a bustling


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