Econ 1 Notes:Lecture 1: 1/07/13-How to allocate scarce resources, who’s gonna get them.-Scarcity- limited nature of society’s resources-Economics- study of how society manages its scarce resources--by society-the market. The invisible hand: if everyone works in self-interest1. Incentives Matter:-People respond to incentives in different ways.2. Markets are usually a good way to organize activity.-Group of buyers and sellers.-organize activity= what goods to producec, how to produce, how much of each toproduce, who gets them. -Market economy: allocates resources through decentralzied decisions of manyhouseholds and firms as they interect in markets.Watch Milton Friedman’s “Lesson of the Pencil”3. People face tradeoffs:-Tradeoffs: the one thing you give up when you make a decision.-Society faces tradeoff between efficiency (society gets most from scarce resources) &equality (resources distributed equally among society’s members)-This tradeoff exists beause the incentice to work and produce reduces as everyone wouldget the same amount. -Time you give up is part of opportunity ost.4. Rational People think at the margin:-Thinking at increments5. Power of Trade:-Benefits from trade and specializationLecture 2: 01/09/13:6. The importance of wealth and economic growth:-what determines standard or living? Productivity of that country (amount of goods andservices produced per unit of labor.) -It depends on the equipment, skills, and technology available to workers. Othersfactors such as labor unions, competition from abroad have less impact on livingstandards. 7. Institutions matter-important role for govt to enforce poperty rights (police, courts, etc)-Market failure: -Externalities- positive/negative affects on bystander. (When you get flu shot, bystandersaffected positively cuz you won’t spread germs.)-Market power- single buyer or seller has substantial influence on market price(monopoly) (biopolies-same thing with two competitors only like: apple &microsoft)-not ideal, cuz prices should be responding to the invisible hand of negotiationbetween buyers and sellers.-public policy may promote efficienc-govt may alter market outcome to promote equality through tax or welfare policies. 8. Economic booms and bursts cannot be avoided but can be moderated.-use fiscal (taxing&spending) and monetary policy (money supply) toattempt to smoothout this economic volatility.9. Prices rise when the govt prints too much money.-can’t just print lots of money because of inflation (price goes up, value of dollar goesdown) 10. Short-run tradeoff between inflation and unemployment. -The Federal Reserve is in charge of money supply.Additional note: (something about the president, chairman of Fed)Chapter 2: The power of trade&economic comparative advantage:-Through trade, consumers enjoy more than they would have normally had been able too. -Can’t have both absolute advantage and comparative advantage in one thing. -Production Possibilites CurveTest question: Which trades are feasible?-If each country has an absolute advantage in one good&specializes in that good, then bothcountries can gain from trade. But, even if a country has absolute advantage in both goods, tradeis still beneficial.Lecture 3:There is no need to trade if there is no absolute advantage/it is equal.Watch Ted talk- on ppt 2.Chapter 3:How do markets allocate resources?-determine price and preferences-Demand schedule is different than the quantity demanded ( at a specific point)-Consumer and producer surplus review.-Demand shifters: income, price of substitutes, price of complements, expectations, population,tastesLecture 5:Equilibrium:Price taker- In a competetive market, supply and demand determine prices. So many sellers andbuyers, the entry of just one new doesn’t disrupt the equillibrium price. Lecture 6:Increasing in elasticity- flatterDecreasing in elasticity -