ECONS 102 1st Edition Lecture 1 Outline of Last Lecture N A Outline of Current Lecture Introduction of Economics Key terms and their meanings First Principles o Basic Principles of the Individual Choice Current Lecture INTRODUCTION Human beings organized as consumers firms etc What can we learn about ordinary business using economics o How does our economic system work o When does this system fail to deliver goods and services Eg traffic pollution o What are the causes for ups and downs in an economy KEY TERMS Economics Science that studies production distribution and consumption of goods and services Economy System that coordinates productive activities Market Economy o An economy in which production consumption are the result of decentralized decision making o Does not absolutely exclude government regulation participation Eg Defense Sector Public Transportation USA Types of Economies o Market Economy Used by USA UK Other leading economies o Mixed Economy Prominent during the Cold War Era o Command Economy Decisions made by Central Planner Communist Eg Cuba Invisible Hand 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 o Pursuit of self interest can lead to good results for society o When it DOES NOT hold true Market Failure Greed Microeconomics Study of individual decision making process and how these decisions interact Market Failure Pursuit of self interest leads to undesirable outcome Eg Pollution Traffic Congestion Recession Downturn in an economy Lighter Version of a Depression Macroeconomics Deals with ups and downs in an economy Economic Growth Growing ability of the economy to produce goods and services FIRST PRINCIPLES Individual Choice is the decision by an individual of what to do which necessarily involves a decision of what not to do Basic Principles a Resources are scarce b The real cost of something is what you must give up to get it c How much is a decision at the margin d People usually take advantage of opportunities to make themselves better off A Resources are scarce A resource is anything that can be used to produce something else o Land Labor Capital Resources are scarce the quantity available isn t large enough to satisfy all productive uses o Petroleum Lumber Intelligence B Opportunity Cost The real cost of an item is its opportunity cost what you must give up in order to get it Opportunity cost is crucial to understanding individual choice o The cost of attending an economics class is what you must give up to be at the lecture Sleep Video Games Breakfast It is all about what you have to forgo to obtain your choice C Decision at the Margin You make a trade off when you compare the costs with the benefits of doing something Decisions about whether to do a bit more or a bit less of an activity are marginal decisions Marginal Analysis The study of such decisions o Hiring on more workers makes more or less profit etc Sequential Decision Making o Step 1 Whether to buy or not o Step 2 How much to buy D Exploiting Opportunities Incentives
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