ECON 105 Lecture 4Outline of Last Lecture II. Production Possibilities Frontier (PPF)A. Definition of PPFB. Points on the graphC. What shift the PPFIII. Shape of PPFa. Law of Increasing Costsb. Law of Diminishing returnsc. Law of Comparative AdvantageIV. Distinction between comparative vs absolute advantage V. Practice QuestionsOutline of Current Lecture I. Doctrine of Invisible Hand II. Limitations of Invisible HandIII. Crucial Ingredients for Exchangea. A. low transactions costsIV. DemandA. Law of DemandB. Demand CurveCurrent LectureDoctrine of Invisible Hand (Adam Smith)- When economic agents (buyers & sellers) act in their self-interest without any interference by the government they end up promoting well-being of the society- Emphasizes “Hands-off” government- Has less relevance in modern world as all governments interfere to varying degrees in their economics These 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.Limitations of Invisible Hand (case for all govt intervention)- income distribution - role of government- Public goods – no rivalry in consumption (many people can use, difficult to exclude)- Externalities – private costs/benefits (outside effects such as pollution)- Costs are benefits of any transactions between buyer and sellers are borne by third parties - Monopoly – sometimes needs to be controlled by the governmentCrucial Ingredients for Exchange- Well defined property rights- Low transactions costs- Needs to be relatively low- When high buying and selling happens less- Information / Uncertainty DemandDemand: the amount people are prepared to buy under specified circumstances during a specific time periodLaw of Demand: there is a negative relationship between the price of a good and its quantity demanded - -> holding other factors constantDemand Curve: shows various quantities demand at different prices, holding other factors constant - The market demand curve is the horizontal summation of individual demand- Principle of Substitution (closest to law of demand) – nearly every good has a