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UW-Madison ECON 101 - Production Possibility Frontiers

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ECON 101: Lecture, Thursday Sept. 18thA. Economic growth using the PPF1. PPF could shift because:a. increase in resourcesb. New technologyc. decisions this time period affects the future- trade-off between current and future consumptiona. US vs Japan1. 1965- things from Japan weren't very good and they gave the US crappy "favors". The US devoted about 1/5 of their resources to Capital good production and Japan devoted 1/3 of their resources to capital good production.2. 1993- US PPF per capita is very similar to Japan's PPF/ capitaB. Economic question1. Economics is the study of the allocation, production, and distribution of goods and services in a world of scarcitya. Scarcity implies that we have to make choicesb. goods and services- services include personal care items like haircuts and mani and pedis. Legal and health and education service2. Allocation- how do we want to use our scarce resourcesa. WHAT are we going to produce?1. the mix of goods and services3. Production- HOW are we going to produce these goods and services? a. since resources are scarce, we want to produce as efficiently as possible. Let's minimize waste4. Distribution- WHO gets the goods and services we produce?C. Economic systems1. Traditional- jobs are handed down from generation to generation. Fairly small and simple and less mobilitya. Barter economy- double of coincidence of wants2. Planned or Command Economy- China- Central planner tells everyone what they are supposedto producea. Highly inefficient, and tend to have a lot of wasted resources.3. Market economy- Supply and demand drivena. Price acts as a signal to allocate resources to the most valued usesb. Things we need for it to work:1. Need property rights2. System of law and orderc. Highly efficient, could be deficient in some places. Could be unfair. D. Course Focus1. 1st 11 or 12 weeks we will focus on Market focus2. 12 to 16 we will focus on market failure.E. Why do economists agree that there is a need for government?1. To define and enforce property rights2. To provide national defense and other public goods. There are goods that the market won't provide or won't provide enough so the government helps out with that.3. (Macro) To pursue stabilization policya. Stabilization policy- government may need to step in to help the economyE. Market Failures1. Might occur because of asymmetric information2. Markets will fail when we have the presence of a natural economy3. Presence of


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